Dynamic Influences on Regulatory Dispute Settlements: The Role of Precedents and Preceding Decisions

19 Pages Posted: 14 Jul 2009

See all articles by Magnus Söderberg

Magnus Söderberg

University of South Australia

David Round

University of South Australia - Division of Business and Enterprise - Centre for Applied Economics

Date Written: July 14, 2009

Abstract

Compared to general civil disputes, regulatory dispute settlements exhibit unique characteristics such as only one decision-making agent, fewer numbers of cases and lower case type variability. This could increase the likelihood of several decision biases and the first purpose of this paper is to sketch a formalised reasoning around two of these. We argue, first, that regulatory authorities care about their existence and therefore increase the probability of reversing a run of identical decision outcomes as the run gets longer – thus, giving rise to what we denote a ‘survival bias’. We illustrate through simulation how an arbitrary decision is affected by various levels of survival bias. Second, we demonstrate that when decision uncertainty is significant, subsequent decisions will exhibit status quo bias due to the requirement of consistent judgment.

The second purpose of the paper is to evaluate the survival and status quo biases empirically (based on 462 dispute settlement from the Swedish electricity market). Additionally, we test our hypothesis that the regulator attaches too much weight to precedents. The estimations show that the regulator is influenced by the survival bias to some extent, the status quo bias to a significant extent and that precedents are used excessively. Based on this, we argue that a single, multi-sectoral regulator has advantages over several independent, sectoral specific regulators.

Keywords: Dispute settlement, utility regulation, decision bias, precedent, preceding decisions, Sweden

JEL Classification: K23

Suggested Citation

Söderberg, Magnus and Round, David K., Dynamic Influences on Regulatory Dispute Settlements: The Role of Precedents and Preceding Decisions (July 14, 2009). Available at SSRN: https://ssrn.com/abstract=1433626 or http://dx.doi.org/10.2139/ssrn.1433626

Magnus Söderberg (Contact Author)

University of South Australia ( email )

37-44 North Terrace
Adelaide, South Australia 5001
Australia

David K. Round

University of South Australia - Division of Business and Enterprise - Centre for Applied Economics ( email )

Australia
61-8-8302-0760 (Phone)
61-8-8302-0512 (Fax)

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