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Economic Regulation and Political Influence

In: Contemporary Economic Issues

Author

Listed:
  • Israel Finkelshtain

    (The Hebrew University of Jerusalem)

  • Yoav Kislev

    (The Hebrew University of Jerusalem)

Abstract

The purpose of this chapter is to discuss the effect of political pressure on economic regulation. In particular, we compare indirect regulation by prices to direct, administrative control of quantities. This is Martin Weitzman’s (1974) comparison. However, while Weitzman contrasts controls where information is incomplete, we analyze the consequences of political influence. As a concrete example, we consider an industry employing a factor with external effects — negative or positive. (Drawing water from a shared source may create negative externalities and using reclaimed sewage for irrigation may have positive effects.) The government is attempting to regulate utilization of the factor and the producers react, trying to modify the implemented policy. The ensuing political equilibrium varies with the nature of the externalities and means of control.

Suggested Citation

  • Israel Finkelshtain & Yoav Kislev, 1998. "Economic Regulation and Political Influence," International Economic Association Series, in: Yair Mundlak (ed.), Contemporary Economic Issues, chapter 12, pages 243-258, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-26188-8_12
    DOI: 10.1007/978-1-349-26188-8_12
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