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Political Price Cycles In Regulated Industries: Theory And Evidence

  • Rodrigo Menon S. Moita
  • Claudio Paiva

This paper develops a model of political regulation in which politicians set the regulated price in order to maximize electoral support by signaling to voters a pro-consumer behavior. Political incentives and welfare constraints interact in the model, yielding an equilibrium in which the real price in a regulated industry may fall in periods immediately preceding an election. The paper also provides empirical support for the theoretical model. Using quarterly data from 32 industrial and developing countries over 1978-2004, we find strong statistical and econometric evidence pointing toward the existence of electoral price cycles in gasoline markets.

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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. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  2. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  3. Paiva, Claudio A. C., 1996. "Electoral price cycles in regulated industries," World Development, Elsevier, vol. 24(10), pages 1673-1680, October.
  4. Gordon Dahl, 1997. "Mobility and the Returns to Education: Testing A Roy Model With Multiple Markets," Working Papers 760, Princeton University, Department of Economics, Industrial Relations Section..
  5. Rodrigo Menon S. Moita & Claudio Paiva, 2006. "Political Price Cycles In Regulated Industries: Theory And Evidence," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 126, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Ioannis N. Kessides, 2004. "Reforming Infrastructure : Privatization, Regulation, and Competition," World Bank Publications, The World Bank, number 13525.
  7. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  8. 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.
  9. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  10. Steven G. Rivkin, 1995. "Black/White Differences in Schooling and Employment," Journal of Human Resources, University of Wisconsin Press, vol. 30(4), pages 826-852.
  11. 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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  13. 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.
  14. Timothy Besley & Stephen Coate, 2003. "Elected Versus Appointed Regulators: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1176-1206, 09.
  15. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  16. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  17. 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.
  18. O'Neill, June, 1990. "The Role of Human Capital in Earnings Differences between Black and White Men," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 25-45, Fall.
  19. 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.
  20. 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.
  21. Bishop, John Hillman, 1989. "Is the Test Score Decline Responsible for the Productivity Growth Decline?," American Economic Review, American Economic Association, vol. 79(1), pages 178-97, March.
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