Politically Induced Regulatory Risk and Independent Regulatory Agencies

Roland Strausz

No 10838, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Electoral uncertainty; Independent regulatory agency; Regulation; Regulatory risk (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-cdm, nep-pol and nep-reg
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Journal Article: Politically induced regulatory risk and independent regulatory agencies (2017)
Working Paper: Politically Induced Regulatory Risk and Independent Regulatory Agencies (2017)
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