Perceiving Credible Commitments: How Independent Regulators Shape Elite Perceptions of Regulatory Quality

Abstract

Numerous recent studies have addressed how the investment choices of firms depend on elite perceptions of the quality of national regulatory regimes. Likewise, other studies show that government structures can help to support credible commitments that protect market mechanisms. We provide the first analytic discussion of elite perceptions of national regulatory quality as a function of the independence of regulators in a country's political system. Our central claims are that market operations depend on perceptions of regulatory quality and that independent regulators facilitate elite perceptions of regulatory quality because they check actors in domestic political systems. Cross-national statistical evidence suggests that regulatory independence supports elite perceptions of high regulatory quality. We also provide evidence that regulatory independence is more likely where political competition shapes incentives to intervene in business markets.

Keywords: Regulatory quality, regulatory independence, political economy

JEL Classification: 057, K20, D73, D78