Enforcing Time-Inconsistent Regulation

Andrew N Kleit

Economic Inquiry, 1992, vol. 30, issue 4, 639-48

Abstract: Passage of legislation enacting a regulatory program does not ensure that the program will be successfully implemented. Certain regulations require significant long-term investment by firms prior to their enforcement date. If firms do not engage in the desired investment, enforcing the regulations may generate significant welfare losses for society. Firms know this and may behave strategically by not undertaking the investment, generating the well-known time-inconsistency problem. A game-theoretic model presented here shows how the time-inconsistency problem can be alleviated using administrative procedures as a device to commit an agency to carrying out its bureaucratic mission. Copyright 1992 by Oxford University Press.

Date: 1992
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