Regulatory independence may limit electoral holdup but entrench capture
Bibliographic Data
| ID | 10932002 |
|---|---|
| Authors | Arthur Schram (0000-0002-1767-4998, Tinbergen Institute, corresponding author), Aljaž Ule (University of Primorska) |
| Year | 2024 |
| Volume | 198 |
| Issue | 3-4 |
| Pages | 403-425 |
| Publication date | 2024-03-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Public Choice (JOURNAL) |
| Journal identifiers | ISSN: 0048-5829 • E-ISSN: 1573-7101 |
| Publisher | Springer Science and Business Media LLC (PUBLISHER) |
| DOI | 10.1007/s11127-023-01136-y |
| OpenAlex | W4391520995 |
| Language | EN |
| References cited | 32 |
Private infrastructure investment is profitable only if followed by a sufficiently high price, but pricing may be subject to regulation. We study markets where regulation is determined by elected policymakers. If price regulation is subject to manipulation then private investors may delay investment fearing an electoral pressure on future prices, leading to a holdup inefficiency. This could possibly be alleviated by regulatory independence, where policymakers can no longer influence the prices. However, to encourage investment the policymakers may install regulation that serves the interests of the infrastructure owners (“regulatory capture”) and lead to inefficient pricing. Regulatory independence can then be detrimental as it may entrench this capture. Whether inefficiencies can be moderated by creating regulatory independence therefore depends on the policymakers’ objectives. We provide experimental evidence for such capture entrenchment and detrimental effects of regulatory independence that therefore arise. Even without independence, the uninformed voters do not provide sufficient pressure to remove these effects. On the other hand, we observe that regulatory independence does reduce holdup inefficiency when policymakers align with the public interest
Business · Economics · Independence (probability theory · Inefficiency · Investment (military · Macroeconomics · Market economy · Microeconomics · Political science · Public economics · Public finance · Fiscal Policy and Economic Growth · Housing Market and Economics · Law · Public-Private Partnership Projects
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| Citation velocity | historical |
|---|---|
| Highly cited | No |