Bureaucratic Minimal Squawk: Theory and Evidence

Clare Leaver
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Clare Leaver: University College London

No 121, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: Regulators appointed on finite contracts have an incentive to signal their worth to the job market. This paper shows that, if contracts are sufficiently short, this can result in "minimal squawk" behaviour. Regulated firms publicise the quality of unfavourable decisions, aware that regulators then set favourable policies more often to keep their professional reputation intact. Terms of office vary across US states, prompting an empirical test using firm-level data from the regulation of the US electric industry. Consistent with the theory, we find that shorter terms are associated with fewer rate of return reviews and higher residential prices.

Date: 2002-08-29
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