The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs

David Martimort

The Review of Economic Studies, 1999, vol. 66, issue 4, 929-947

Abstract: The dynamics of regulation is analysed in a model where regulatory capture comes from the repeated interaction between an interest group and a regulatory agency. Regulatory institutions offer a framework for this dynamic process. They put constraints on the interest group's influence. The dynamics of regulation and its long-run outcome depend on the political principal's, the regulator's and the regulated firm's time preferences and their information. Some foundations for the transaction costs of side-contracting used in the standard literature on collusion are provided. Those transaction costs are linked to the precise nature of regulatory institutions.

Date: 1999
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