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Regulatory behaviour under threat of court reversal: Theory and evidence from the Swedish electricity market

Author

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  • Magnus Söderberg

    (CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique, SDU - University of Southern Denmark)

  • Flavio Menezes

    (UQ [All campuses : Brisbane, Dutton Park Gatton, Herston, St Lucia and other locations] - The University of Queensland)

  • Miguel Santolino

    (University of Barcelona)

Abstract

This paper investigates how regulators influence outcomes in regulated markets when their decisions are subject to the threat of court review. We develop a theoretical model that provides a number of behavioural implications when (i) all regulators' dislike having their decisions overturned by courts, (ii) inexperienced regulators care more about not having their decisions overturned than experienced regulators, and (iii) experienced regulators also care about consumer surplus. The theoretical implications are tested using a database of Swedish regulatory decisions from the electricity distribution sector. We provide empirical evidence that inexperienced regulators are more likely to set higher regulated prices than experienced regulators, and as the complexity of the case increases, there are on average more overturned decisions and higher prices for inexperienced regulators. The links between experience, complexity and regulatory outcomes are both statistically and economically significant. Simulations show that if those decisions that were not appealed had been appealed, then the court would have lowered the prices by 10% on average.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Magnus Söderberg & Flavio Menezes & Miguel Santolino, 2018. "Regulatory behaviour under threat of court reversal: Theory and evidence from the Swedish electricity market," Post-Print hal-01737570, HAL.
    • Handle: RePEc:hal:journl:hal-01737570
    DOI: 10.1016/j.eneco.2018.03.006
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    Cited by:

    1. Roy Gava, 2022. "Challenging the regulators: Enforcement and appeals in financial regulation," Regulation & Governance, John Wiley & Sons, vol. 16(4), pages 1265-1282, October.

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    More about this item

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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