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Politically Induced Regulatory Risk and Independent Regulatory Agencies

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  • Strausz, Roland

Abstract

Uncertainty in election outcomes generates politically induced regulatory risk. Political parties' risk attitudes towards such risk depend on a fluctuation effect that hurts both parties and an output--expansion effect that benefits at least one party. Notwithstanding the parties' risk attitudes, political parties have incentives to negotiate away all regulatory risk by pre-electoral bargaining. Efficient pre-electoral bargaining outcomes fully eliminate politically induced regulatory risk. Political parties can implement such outcomes by institutionalizing politically independent regulatory agencies and endowing them with a specific objective.

Suggested Citation

  • Strausz, Roland, 2015. "Politically Induced Regulatory Risk and Independent Regulatory Agencies," CEPR Discussion Papers 10838, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10838
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    Cited by:

    1. Tapas Kundu & Tore Nilssen, 2020. "Delegation of Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 445-482, September.
    2. Fiocco, Raffaele & Guo, Dongyu, 2020. "Regulatory risk, vertical integration, and upstream investment," European Economic Review, Elsevier, vol. 128(C).

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    More about this item

    Keywords

    Electoral uncertainty; Independent regulatory agency; Regulation; Regulatory risk;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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