Consumer Standards as a Strategic Device to Mitigate Ratchet Effects in Dynamic Regulation

Raffaele Fiocco and Roland Strausz

No 4758, CESifo Working Paper Series from CESifo

Abstract: Strategic delegation to an independent regulator with a pure consumer standard improves dynamic regulation by mitigating ratchet effects associated with short term contracting. A pure consumer standard alleviates the regulator’s myopic temptation to raise output after learning the firm is inefficient. Anticipating this tougher regulatory behavior, efficient firms find it less attractive to exaggerate costs. This reduces the need for long term rents and mitigates ratchet effects. A welfare standard biased towards consumers entails, however, allocative costs arising from partial separation of the firms’ cost types. A trade-off results which favors strategic delegation when efficient firms are relatively likely.

Keywords: dynamic regulation; strategic delegation; consumer standard; ratchet effects; limited commitment (search for similar items in EconPapers)
JEL-codes: D82 L51 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp4758.pdf (application/pdf)

Related works:
Journal Article: Consumer Standards as a Strategic Device to Mitigate Ratchet Effects in Dynamic Regulation (2015)
Working Paper: Consumer Standards as a Strategic Device to Mitigate Ratchet Effects in Dynamic Regulation (2014)
Working Paper: Consumer standards as a strategic device to mitigate ratchet effects in dynamic regulation (2012)
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:ces:ceswps:_4758

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe (wohlrabe@ifo.de).