The Political Economy of Regulatory Risk

Roland Strausz

No 2953, CESifo Working Paper Series from CESifo

Abstract: This paper investigates political uncertainty as a source of regulatory risk. It shows that political parties have incentives to reduce regulatory risk actively: Mutually beneficial pre–electoral agreements that reduce regulatory risk always exist. Agreements that fully eliminate it exist when political divergence is small or electoral uncertainty is appropriately skewed. These results follow from a fluctuation effect of regulatory risk that hurts parties and an output–expansion effect that benefits at most one party. Due to commitment problems, regulatory agencies with some degree of political independence are needed to implement pre–electoral agreements.

Keywords: regulation; regulatory risk; political economy; electoral uncertainty; independent regulatory agency (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The political economy of regulatory risk (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2953

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