Electoral Accountability and Consumer Monopsonists: Evidence from Elected vs. Appointed Regulators

Abstract:     
Producers of local exchange services maintain significantly smaller capital stocks in states that elect public utility commissioners (PUCs). This relationship is difficult to rationalize as (i) an artifact of endogeneity bias or (ii) evidence that elected regulators constrain producers' monopolistic opportunities. Instead, it finds a robust explanation in standard political economy models - i.e., electoral accountability can facilitate consumers' monopsonistic ambitions, weaken regulatory commitments, and ease the expropriation of real options.

Keywords: Democracy and economic performance, regulatory capture, credible commitment, telecommunications policy

JEL Classifications: D72, D73, L96

Working Paper Series