Information Asymmetries and Regulatory Decision Costs: An Analysis of U.S. Electric Utility Rate Changes 1980--2000

Adam R. Fremeth and Guy L. F. Holburn

The Journal of Law, Economics, and Organization, 2012, vol. 28, issue 1, 127-162

Abstract: We argue that information asymmetries between regulators and firms increase the administrative decision costs of initiating new policies due to the costs of satisfying evidentiary or "burden of proof" requirements. We further contend that regulators with better information about regulated firms--that is, with lower information asymmetries--have lower decision costs, thereby facilitating regulator policy making. To empirically test our predictions, we examine the relationship between regulatory informational environments and changes to regulated rates for all investor-owned electric utilities from 1980 to 2000. We exploit several natural sources of variation in the informational environments of US state utility regulators. These stem from the prior experiences and administrative resources of regulators, observable policy decisions of other regulatory agencies for a given utility, and differences in procedural regulations pertaining to rate increases and decreases. Our results suggest that as regulators acquire more information about utility operations, including from experience in office, they are more likely to enact rate decreases and less likely to implement rate increases. The Author 2010. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://hdl.handle.net/10.1093/jleo/ewp042 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:28:y::i:1:p:127-162

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Journal of Law, Economics, and Organization is currently edited by Andrea Prat

More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().