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A theory of soft capture

Author

Listed:
  • AGRELL, Per

    () (Université catholique de Louvain, CORE & Louvain School of Management, B-1348 Louvain-la-Neuve, Belgium)

  • GAUTIER, Axel

    () (CREPP, HEC-Université de Liège, B-4000 Liège, Belgium; Université catholique de Louvain, CORE, B- 1348 Louvain-la-Neuve, Belgium)

Abstract

In this paper, wee propose a model for regulatory capture that is based on information transmission and asymmetric information. In a three- tier model, a regulator is charged by a political principal to provide a signal for the type of a regulated firm. Only the firm can observe his type and the production of a correlated signal with a given accuracy is costly for the regulator. The firm can costlessly provide an alternative signal of lower accuracy that is presented to the regulator. In a self-enforcing equilibrium, the regulator transmits the firm-produced signal, internalizes its own savings in information cost and the firm enjoys higher information rents. The main feature of soft capture is that it is not based on a reciprocity of favors but on a congruence of interests between the firm and the regulator.

Suggested Citation

  • AGRELL, Per & GAUTIER, Axel, 2010. "A theory of soft capture," CORE Discussion Papers 2010084, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2010084
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    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2010_84web.pdf
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    Other versions of this item:

    • Axel Gautier & Per J. Agrell, 2011. "A Theory of Soft Capture," CREPP Working Papers 1107, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.

    References listed on IDEAS

    as
    1. Rabah Amir, 2005. "Supermodularity and Complementarity in Economics: An Elementary Survey," Southern Economic Journal, Southern Economic Association, vol. 71(3), pages 636-660, January.
    2. Yolande Hiriart & David Martimort, 2012. "How much discretion for risk regulators?," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 283-314, June.
    3. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
    4. Peltzman, Sam, 1976. "Toward a More General Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 211-240, August.
    5. David Martimort, 1999. "The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 929-947.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Per J. Agrell & Axel Gautier, 2012. "Rethinking Regulatory Capture," Chapters,in: Recent Advances in the Analysis of Competition Policy and Regulation, chapter 14 Edward Elgar Publishing.
    2. Lindemann, Henrik, 2015. "Does Regulatory Independence Translate into a Higher Degree of Liberalization? - Evidence from EU Energy Regulators," Hannover Economic Papers (HEP) dp-545, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    3. Lindemann, Henrik, 2015. "Budgetary Interests and the Degree of Unbundling in Electricity Markets - An Empirical Analysis for OECD Countries," Hannover Economic Papers (HEP) dp-543, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    4. Lindemann, Henrik, 2015. "Regulatory Objectives and the Intensity of Unbundling in Electricity Markets," Hannover Economic Papers (HEP) dp-544, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

    More about this item

    Keywords

    regulation; capture; information;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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