Red Tape: Oiling the Hinges of the 'Revolving Door'

Abstract

This paper presents a behavioral model of regulators. In our model, the regulator creates red tape - bureaucratic rules and regulations that complicate procedures in an industry. As the enactor of these rules and regulations, the regulator has better knowledge of the ins-and-outs of the system and any possible loopholes. Such knowledge is valuable to the firms in the industry, and thus, after leaving public service, the regulator can cash-in on the red tape he has created. Comparative statics show a negative relationship between the amount of red tape generated and the duration of the cooling-off period. Analysis of the data yields results compatible with this outcome.

Keywords: Red tape, Cooling-Off Periods, Revolving Door, Regulation

JEL Classification: K23, L51