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Bureaucratic Minimal Squawk Behavior: Theory and Evidence from Regulatory Agencies

  • Clare Leaver
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    This paper argues that bureaucrats are susceptible to `minimal squawk` behavior. I develop a simple model in which a desire to avoid criticism can prompt, otherwise public-spirited, bureaucrats to behave inefficiently. Decisions are taken to keep interest groups quiet and mistakes out of the public eye. The policy implications of this behavior are at odds with the received view that agencies should be structured to minimise the threat of `capture`. I test between theories of bureaucratic behaviour using a matched panel of U.S. State Public Utility Commissions and investor-owned electric utilities. The data soundly reject the capture hypothesis and are consistent with the minimal squawk hypothesis: longer PUC terms of office are associated with an increase in the incidence of rate reviews in period of falling input costs and, in turn, lower household electricity bills.

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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper344.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 344.

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    Date of creation: 01 Aug 2007
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    Handle: RePEc:oxf:wpaper:344
    Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
    Web page: http://www.economics.ox.ac.uk/
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    1. Andrea Prat, 2005. "The Wrong Kind of Transparency," American Economic Review, American Economic Association, vol. 95(3), pages 862-877, June.
    2. 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.
    3. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
    4. Frisell, Lars & Roszbach, Kasper F. & Spagnolo, Giancarlo, 2008. "Governing the Governors: A Clinical Study of Central Banks," CEPR Discussion Papers 6888, C.E.P.R. Discussion Papers.
    5. Levy, Gilat, 2004. "Anti-herding and strategic consultation," European Economic Review, Elsevier, vol. 48(3), pages 503-525, June.
    6. Jean-Jacques Laffont & Jean Tirole, 1988. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," Working papers 506, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. John Fingleton, 2005. "Career Concerns of Bargainers," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(1), pages 179-204, April.
    8. P. Joskow, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Working papers 128, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Canice Prendergast, 2003. "The Limits of Bureaucratic Efficiency," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 929-958, October.
    10. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    11. Hilton, George W, 1972. "The Basic Behavior of Regulatory Commissions," American Economic Review, American Economic Association, vol. 62(2), pages 47-54, May.
    12. Ernesto Dal Bo & Rafael Di Tella, 2003. "Capture by Threat," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1123-1152, October.
    13. Epstein, David & O'Halloran, Sharyn, 1995. "A Theory of Strategic Oversight: Congress, Lobbyists, and the Bureaucracy," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 227-55, October.
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