Politically Induced Regulatory Risk and Independent Regulatory Agencies

Strausz, Roland (2017): Politically Induced Regulatory Risk and Independent Regulatory Agencies. Collaborative Research Center Transregio 190, Discussion Paper No. 44

Abstract

Uncertainty in election outcomes generates politically induced regulatory risk. For monopoly regulation, political parties' risk attitudes towards such risk depend on a fluctuation effect that hurts both parties and an output--expansion effect that benefits at least one party. Irrespective of the parties' risk attitudes, political parties have incentives to negotiate away regulatory risk by pre-electoral bargaining. Pareto-efficient bargaining outcomes fully eliminate regulatory risk and are attainable through institutionalizing independent regulatory agencies with a specific objective. Key aspects of the regulatory overhaul of the US Postal system in 1970 are argued to be consistent with these results.

• Item Type: Paper (Discussion Paper)
• Keywords: regulation;independent regulatory agency;regulatory risk;electoral uncertainty
• Faculties: Economics > Collaborative Research Center Transregio "Rationality and Competition"
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D82
• Language: English