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Political Price Cycles In Regulated Industries: Theory And Evidence

  • Rodrigo Menon S. Moita
  • Claudio Paiva

The early work of Stigler (1971) treats the regulatory process as the arbitration of conflicting economic and political interests rather than a pure welfare-maximizing effort. This paper builds on these ideas and models the regulatory process as a game where the industry-lobby, consumers-voters, and a regulator-politician interact to define the regulated price, in alternating electoral and non-electoral periods. The equilibrium that emerges consists of a fully rational political price cycle in a regulated industry. Using monthly data for regulated gasoline and electricity prices from Brazil, we find strong evidence pointing towards the existence of electoral price cycles in both markets. (JEL D72, L51, L71, L78, L94, L98, O14)

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Paper provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its series Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] with number 126.

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Date of creation: 2006
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Handle: RePEc:anp:en2006:126
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  1. Rodrigo M. S. Moita & Claudio Paiva, 2013. "Political Price Cycles in Regulated Industries: Theory and Evidence," American Economic Journal: Economic Policy, American Economic Association, vol. 5(1), pages 94-121, February.
  2. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
  3. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
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  8. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  9. Kevin M. Murphy & Sam Peltzman, 2004. "School Performance and the Youth Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 299-328, April.
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  13. Peltzman, Sam, 1993. "George Stigler's Contribution to the Economic Analysis of Regulation," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 818-32, October.
  14. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
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  17. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  18. Spiller, Pablo T, 1990. "Politicians, Interest Groups, and Regulators: A Multiple-Principals Agency Theory of Regulation, or "Let Them Be Bribed."," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 65-101, April.
  19. Ioannis N. Kessides, 2004. "Reforming Infrastructure : Privatization, Regulation, and Competition," World Bank Publications, The World Bank, number 13525.
  20. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  21. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
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