Date of This Version
May 2008
Abstract
The determinants of incentive regulation are a key issue in industrial policy. I study an asymmetric information model of incentive rules selection by a political principal endowed with an information-gathering technology whose efficiency increases with the effort exerted by two accountable supervisors (a regulator and a judge). This set up captures the institutions of several international markets. The model predicts that reforms toward higher powered rules are more likely the more inefficient (efficient) is the production (information-gathering) technology, the less tight is political competition and the greater are pro-consumer supervisors’ incentives. This prediction is consistent with evidence based on US electric power market data.
Recommended Citation
Guerriero, Carmine, "The Political Economy of Incentive Regulation: Theory and Evidence from US States" (May 15, 2008). Fondazione Eni Enrico Mattei Working Papers. Paper 193.
https://services.bepress.com/feem/paper193