Good and Bad Consistency in Regulatory Decisions

13 Pages Posted: 1 Jan 2011

See all articles by Flavio M. Menezes

Flavio M. Menezes

University of Queensland - School of Economics

Christian Roessler

Erasmus University Rotterdam (EUR); Brown University

Abstract

We examine sources of consistent regulatory decisions in a model where regulators respond to mixed incentives, including career concerns. In the reference case, regulators act as public servants who strive to make the socially optimal decision, given limited information and the opportunity to observe the prior decision of another regulator. The addition of career concerns, such as a desire to avoid controversy or to implement a future employer's preferred policy, tends to reduce the degree of differentiation in sequentially taken decisions, hence increasing consistency. Therefore, it is possible to observe that the self-interested career concerns of regulators give rise to consistency in regulatory decision making. This type of consistency might lead to substantial deviations from optimal regulatory policies.

Keywords: L51

Suggested Citation

Menezes, Flavio M. and Roessler, Christian, Good and Bad Consistency in Regulatory Decisions. Economic Record, Vol. 86, No. 275, pp. 504-516, 2010, Available at SSRN: https://ssrn.com/abstract=1733396 or http://dx.doi.org/10.1111/j.1475-4932.2010.00631.x

Flavio M. Menezes (Contact Author)

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

Christian Roessler

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Brown University

Box 1860
Providence, RI 02912
United States

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