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Less Is More? Implications of Regulatory Capture for Natural Resource Depletion

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  • Sheetal Sekhri
  • Sriniketh Nagavarapu

Abstract

Well-designed regulation can check politically driven ineciencies, but it can also ex- acerbate distortions if politicians capture the regulators. We examine the consequences of strengthening India's electricity transmission regulatory structure for groundwater ex- traction, where electricity is the key input, and we nd evidence of regulatory capture by politicians. Guided by our model, in which politicians of national and regional parties compete for parliamentary seats, we show that empowering regulators ampli ed distortions in groundwater extraction in favor of national candidates, who have greater incentives and abilities to co-opt the regulators. Using nationally representative groundwater data from India for 1996-2006, we estimate that regulatory capture led to a 2.75 meter additional de- cline in water tables in closely-contested constituencies won by national parties' candidates. The short-term cost in closely-contested regional constituencies is around an 18 percent re- duction in agricultural production.

Suggested Citation

  • Sheetal Sekhri & Sriniketh Nagavarapu, 2013. "Less Is More? Implications of Regulatory Capture for Natural Resource Depletion," Virginia Economics Online Papers 408, University of Virginia, Department of Economics.
    • Handle: RePEc:vir:virpap:408
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    File URL: http://repec.as.virginia.edu/RePEc/vir/virpap/papers/virpap408.pdf
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    Citations

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    Cited by:

    1. Disha Gupta, 2023. "Free power, irrigation, and groundwater depletion: Impact of farm electricity policy of Punjab, India," Agricultural Economics, International Association of Agricultural Economists, vol. 54(4), pages 515-541, July.
    2. Prakash, Nishith & Rockmore, Marc & Uppal, Yogesh, 2019. "Do criminally accused politicians affect economic outcomes? Evidence from India," Journal of Development Economics, Elsevier, vol. 141(C).
    3. Ram Fishman & Upmanu Lall & Vijay Modi & Nikunj Parekh, 2016. "Can Electricity Pricing Save India’s Groundwater? Field Evidence from a Novel Policy Mechanism in Gujarat," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(4), pages 819-855.
    4. Nishith Prakash & Marc Rockmore, 2014. "Do Criminal Representatives Hinder or Improve Constituency Outcomes? Evidence from India," Working papers 2014-20, University of Connecticut, Department of Economics.

    More about this item

    Keywords

    Regulatory Capture; Groundwater Depletion; Political Capture;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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