Regulatory Inertia

Posted: 18 Aug 2003

See all articles by Antoine Faure-Grimaud

Antoine Faure-Grimaud

London School of Economics; Centre for Economic Policy Research (CEPR)

David Martimort

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

Abstract

Regulatory independence from political control enlarges the collusive opportunities between regulators and interest groups. This is costly for current politicians because deterring capture becomes harder. However, independence also constrains future governments. Whenever future and current governments have different preferences, independence creates a stabilization effect as both majorities find it more difficult to move policies toward their ideal points. Since deterring collusion links current and future policies, the current majority can strategically affect the choices of a future government: a commitment effect. We compare those effects and draw some conclusions for the design of the agency's legal status.

Suggested Citation

Faure-Grimaud, Antoine and Martimort, David, Regulatory Inertia. RAND Journal of Economics, Vol. 34, No. 3. Available at SSRN: https://ssrn.com/abstract=429600

Antoine Faure-Grimaud (Contact Author)

London School of Economics ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

David Martimort

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

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Toulouse Cedex, F-31000
France
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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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