Regulatory Inertia

Antoine Faure-Grimaud and David Martimort

RAND Journal of Economics, 2003, vol. 34, issue 3, 413-37

Abstract: Regulatory independence from political control enlarges the collusive opportunities between regulators and interest groups. This is costly for current politicians because deterring capture becomes harder. However, independence also constrains future governments. Whenever future and current governments have different preferences, independence creates a stabilization effect as both majorities find it more difficult to move policies toward their ideal points. Since deterring collusion links current and future policies, the current majority can strategically affect the choices of a future government: a commitment effect. We compare those effects and draw some conclusions for the design of the agency's legal status. Copyright 2003 by the RAND Corporation.

Date: 2003
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