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