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Towards a Political Economy of Industrial Organization: Empirical Regularities from Deregulation

  • Tomaso Duso
  • Lars-Hendrik Röller

This paper argues that the study of policy incidence in industrial organization needs to take the endogeneity of government into account. The point is made by investigating whether political considerations are important in terms of understanding the causes and effects of deregulation using data provided by the OECD. In particular, we address two interrelated questions: (i) do political and institutional factors matter in a systematic way in terms of the decision to deregulate, and (ii) if so, what does this imply in terms of the policy incidence of deregulation. Our results indicate that political considerations do matter. Most importantly, by introducing political and institutional variables into the empirical analysis of policy incidence, we find that policy conclusions are substantially different from an analysis that treats political factors exogenously. We conclude that the evidence is suggestive of the claim that a full understanding of the effect of government intervention in the marketplace implies a closer integration of political economy with industrial organization. ZUSAMMENFASSUNG - (Ein Politökonomischer Ansatz der Industrieökonomie: Empirische Evidenz) In diesem Beitrag die Wechselwirkung zwischen Deregulierungsentscheidungen und Marktergebnissen am Beispiel von OECD-Ländern explizit untersucht. Es wird gezeigt, warum eine "exogene" Betrachtungsweise von Deregulierungspolitik zu einer inkonsistenten Einschätzung wirtschaftspolitischer Maßnahmen führen kann. In der Arbeit werden erste Ansätze beschrieben, die eine konsistente Analyse ermöglichen. Neben politischen Faktoren wird die Rückkoppelung des Marktergebnisses auf die Politikentscheidung berücksichtigt und anhand eines neuen Datensatzes für die OECD-Länder empirisch untersucht. Folgenden zentralen Forschungsfragen wird anhand der OECD-Deregulierungsdaten empirisch nachgegangen. Erstens, welche politischen und institutionellen Faktoren sind bei Deregulierungsentscheidungen von Bedeutung, und zweitens, wie verändert ein simultaner Ansatz, der die Wechselwirkung zwischen Politik und Markt zulässt, die Wirkungsanalyse von wirtschaftspolitischen Maßnahmen?

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Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 01-17.

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Length: 25 pages
Date of creation: Oct 2001
Date of revision:
Publication status: Published under the Title "Endogenous Deregulation: Evidence from OECD Countries" in Economic Letters Vol. 81(1), Oct. 2003, pp.67-71.
Handle: RePEc:wzb:wzebiv:fsiv01-17
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  1. Torsten Persson & Guido Tabellini, 1997. "Political Economics and Macroeconomic Policy," NBER Working Papers 6329, National Bureau of Economic Research, Inc.
  2. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Torsten Persson & Guido Tabellini, 1998. "The Size and Scope of Government: Comparative Politics with Rational Politicians," NBER Working Papers 6848, National Bureau of Economic Research, Inc.
  4. 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.
  5. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
  6. Spiller, Pablo T, 1996. "Institutions and Commitment," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 421-52.
  7. Damien J. NEVEN & Lars-Hendrik RÖLLER, 2000. "Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 00.24, Université de Lausanne, Faculté des HEC, DEEP.
  8. Olivier Boylaud & Giuseppe Nicoletti, 2001. "Regulation, market structure and performance in telecommunications," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 99-142.
  9. Torsten Persson & Guido Tabellini, 2001. "Political Institutions and Policy Outcomes: What are the Stylized Facts?," Temi di discussione (Economic working papers) 412, Bank of Italy, Economic Research and International Relations Area.
  10. Timothy Besley & Anne Case, 1994. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," NBER Working Papers 4956, National Bureau of Economic Research, Inc.
  11. Tim Besley & Stephen Coate, . "An Economic Model of Representative Democracy," Penn CARESS Working Papers ecf70d639d700dba5327ab0c8, Penn Economics Department.
  12. Kaserman, David L & Mayo, John W & Pacey, Patricia L, 1993. "The Political Economy of Deregulation: The Case of Intrastate Long Distance," Journal of Regulatory Economics, Springer, vol. 5(1), pages 49-63, March.
  13. Donald, Stephen G & Sappington, David E M, 1997. "Choosing among Regulatory Options in the United States Telecommunications Industry," Journal of Regulatory Economics, Springer, vol. 12(3), pages 227-43, November.
  14. Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics And Politics Of The Relaxation Of Bank Branching Restrictions," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1437-1467, November.
  15. Winston, Clifford, 1993. "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1263-89, September.
  16. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
  17. Tomaso Duso, 2002. "On the Politics of the Regulatory Reform: Econometric Evidence from the OECD Countries," CIG Working Papers FS IV 02-07, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
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