The political economy of incentive regulation: Theory and evidence from US states

Carmine Guerriero

Journal of Comparative Economics, 2013, vol. 41, issue 1, 91-107

Abstract: The determinants of incentive regulation are an important issue in economics. More powerful rules relax allocative distortions at the cost of lower rent extraction. Hence, they should be found where the reformer is more concerned with stimulating investments by granting higher expected profits, and where rent extraction is less necessary since the extent of information asymmetries is more limited. This prediction is consistent with US power market data. During the 1990s, performance based contracts were signed by firms operating in states where generation costs were historically higher than those characterizing neighboring markets and the regulator had stronger incentives to exert information-gathering effort because elected instead of being appointed.

Keywords: Incentive regulation; Regulatory capture; Electricity; Accountability (search for similar items in EconPapers)
JEL-codes: D73 L11 L51 L94 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: The Political Economy of Incentive Regulation: Theory and Evidence from US States (2008)
Working Paper: The Political Economy of Incentive Regulation: Theory and Evidence from US States (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:41:y:2013:i:1:p:91-107

DOI: 10.1016/j.jce.2012.05.003

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