Separation of Regulators Against Collusive Behavior

Jean-Jacques Laffont and David Martimort

RAND Journal of Economics, 1999, vol. 30, issue 2, 232-262

Abstract: We show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture. Splitting regulatory tasks and monitoring technologies among several nonbenevolent regulators may reduce their discretion in engaging in socially wasteful activities. When regulators make collusive offers that are accepted by the agent whatever his characteristics, competition between regulators relaxes collusion-proofness constraints and improves social welfare. This result is robust to different specifications of the agent's preferences and to the timing of the game as long as one insists on safe side-contracting offers. We also discuss how separation affects both allocative efficiency and the distribution of rents in the economy.

Date: 1999
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Working Paper: Separation of Regulators against Collusive Behavior (1994)
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