Delegation and the Ratchet Effect: Should Regulators Be Pro-Industry?

David Currie, Paul Levine () and Neil Rickman

No 2274, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Delegation to independent bodies whose preference can be different from those of the government has been shown to have beneficial commitment benefits in areas as widely diverse as monetary policy and trade. This paper addresses the case for delegation in the context of a cost-reimbursement procurement problem. Our solution combines several features of the modern regulatory environment: government commitment to a particular regulator, the provision of independence to that regulator, and heterogeneity across regulators available. We find that delegation to an independent industry regulator, whose preferences are more pro-rent than those of the government, can raise welfare by mitigating the ratchet effect.

Keywords: Delegation; Procurement; Ratchet Effect (search for similar items in EconPapers)
JEL-codes: L51 (search for similar items in EconPapers)
Date: Written 1999-10
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