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Delegation and the Ratchet Effect: Should Regulators Be Pro-Industry?

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  • Currie, David
  • Levine, Paul L
  • Rickman, Neil

Abstract

Delegation to independent bodies whose preference can be different from those of the government has been shown to have beneficial commitment benefits in areas as widely diverse as monetary policy and trade. This paper addresses the case for delegation in the context of a cost-reimbursement procurement problem. Our solution combines several features of the modern regulatory environment: government commitment to a particular regulator, the provision of independence to that regulator, and heterogeneity across regulators available. We find that delegation to an independent industry regulator, whose preferences are more pro-rent than those of the government, can raise welfare by mitigating the ratchet effect.

Suggested Citation

  • Currie, David & Levine, Paul L & Rickman, Neil, 1999. "Delegation and the Ratchet Effect: Should Regulators Be Pro-Industry?," CEPR Discussion Papers 2274, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2274
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    References listed on IDEAS

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    Cited by:

    1. Stern, Jon & Trillas, Francesc, 2003. "Independence and discretion in telecommunications regulation: lessons from independent central banks," Utilities Policy, Elsevier, vol. 11(4), pages 191-201, December.
    2. Paul Levine & Paul Levine & Jon Stern & Francesc Trillas, 2003. "Independent Utility Regulators: Lessons from Monetary Policy," School of Economics Discussion Papers 0403, School of Economics, University of Surrey.
    3. Levine, Paul & Rickman, Neil, 2002. "Price Regulation, Investment and the Commitment Problem," CEPR Discussion Papers 3200, C.E.P.R. Discussion Papers.
    4. Francesc Trillas Jané, 2016. "Behavioral Regulatory Agencies," Working Papers wpdea1606, Department of Applied Economics at Universitat Autonoma of Barcelona.

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    More about this item

    Keywords

    Delegation; Procurement; Ratchet Effect;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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