Oust the Louse: Does Political Pressure Discipline Regulators?

Abstract

We consider a possible determinant of regulatory decisions by public utility commissioners: the desire to remain in office. We examine regulatory exit, where a regulator leaves a commission during a term or is not re-appointed/re-elected. With data from US states, we empirically investigate several hypotheses motivated by a political agency model of regulatory decision-making. Our empirical results generally support the hypotheses, including that higher electricity prices lead to ousting, that ousting is less common where it is more costly for the principal to whom the regulator reports, and that ousting is more likely where regulators are more accountable or are more likely to share the principal’s preferences. Furthermore, the results provide limited evidence that regulatory exit is not due mainly to the revolving door. Ousting also appears to lower future electricity prices.

Keywords: public utility commission, public service commission, electricity regulation, interval censored duration data, hazard rate, dynamic panel

JEL Classification: L51, D72, D78, L43, L94, L97