Phasing of Deregulation: Normative versus Positive Objectives

Franz Wirl

Journal of Regulatory Economics, 1991, vol. 3, issue 1, 89-106

Abstract: Deregulation is traditionally endorsed by economists but meets either little reception by politicians or is substantially weakened within the political process. Many papers discuss this aspect, primarily from a rent-seeking aspect. This paper emphasizes the dynamics of deregulation when consumers have sunk costs on the basis of a past regulatory regime. The paper proves first that deregulation should be radical rather than transitory within a conventional, normative framework, even if the consumers act naively and have to bear substantial adjustment costs. As a contrast, a positive model of a vote maximizing politician is introduced that explains why and when actual deregulation proceeds gradually. However, a politician should deregulate at an excessively radical rate at the beginning, if voters have a short memory and/or if demand adjusts sufficiently fast. Copyright 1991 by Kluwer Academic Publishers

Date: 1991
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