Separation of Regulators Against Collusive Behavior

Posted: 18 May 1999

See all articles by Jean-Jacques Laffont

Jean-Jacques Laffont

University of Southern California - Department of Economics (Deceased)

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Abstract

We show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture. Splitting regulatory tasks and monitoring technologies among several non-benevolent regulators may reduce their discretion in engaging in socially wasteful activities. When regulators make collusive offers that are accepted by the agent whatever his characteristics, competition between regulators relaxes collusion-proofness constraints and improves social welfare. This result is robust to different specifications of the agent's preferences and to the timing of the game as long as one insists on safe side-contracting offers. We also discuss how separation affects both allocative efficiency and the distribution of rents in the economy.

JEL Classification: L51

Suggested Citation

Laffont, Jean-Jacques and Martimort, David, Separation of Regulators Against Collusive Behavior. RAND Journal of Economics, Vol. 30, No. 2. Available at SSRN: https://ssrn.com/abstract=150261

Jean-Jacques Laffont

University of Southern California - Department of Economics (Deceased)

No Address Available

David Martimort (Contact Author)

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
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Toulouse Cedex, F-31000
France
+33 5 6112 8614 (Phone)
+33 5 6112 8637 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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