Discussion Paper Details

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Title: Politically Induced Regulatory Risk and Independent Regulatory Agencies

Author(s): Roland Strausz

Publication Date: September 2015

Keyword(s): electoral uncertainty, independent regulatory agency, regulation and regulatory risk

Programme Area(s): Industrial Organization and Public Economics

Abstract: Uncertainty in election outcomes generates politically induced regulatory risk. Political parties' risk attitudes towards such risk depend on a fluctuation effect that hurts both parties and an output--expansion effect that benefits at least one party. Notwithstanding the parties' risk attitudes, political parties have incentives to negotiate away all regulatory risk by pre-electoral bargaining. Efficient pre-electoral bargaining outcomes fully eliminate politically induced regulatory risk. Political parties can implement such outcomes by institutionalizing politically independent regulatory agencies and endowing them with a specific objective.

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Bibliographic Reference

Strausz, R. 2015. 'Politically Induced Regulatory Risk and Independent Regulatory Agencies'. London, Centre for Economic Policy Research.