The Political Economy of Incentive Regulation: Theory and Evidence from US States

Carmine Guerriero ()

No 2008.34, Working Papers from Fondazione Eni Enrico Mattei

Abstract: The determinants of incentive regulation are a key issue in industrial policy. I study an asymmetric information model of incentive rules selection by a political principal endowed with an information-gathering technology whose efficiency increases with the effort exerted by two accountable supervisors (a regulator and a judge). This set up captures the institutions of several international markets. The model predicts that reforms toward higher powered rules are more likely the more inefficient (efficient) is the production (information-gathering) technology, the less tight is political competition and the greater are pro-consumer supervisors’ incentives. This prediction is consistent with evidence based on US electric power market data.

Keywords: Incentive Schemes; Accountability Rules; Regulatory Capture (search for similar items in EconPapers)
JEL-codes: D73 H11 L51 K2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-cta, nep-law, nep-mic, nep-pol and nep-reg
Date: 2008-04

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Persistent link: http://EconPapers.repec.org/RePEc:fem:femwpa:2008.34

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