| David Martimort, Universite des Sciences Sociales |
| Regulatory Inertia |
| Session: C-12-16 Wednesday 16 August 2000 by Martimort, David |
| This paper builds a theory of regulatory inertia based on the desire of an independent regulator to smooth the distribution of intertemporal private benefits he draws from colluding with an interest group. The source of this phenomenon comes from the existence of convex transaction costs of side-contracting. Bribes smoothing implies that shifts in the preferences of the political principals are only imperfectly transmitted to regulatory outcomes when the regulator is independent from the political sphere. We isolate two reasons for inertia in regulatory policies: a stabilization effect due to the control by short-lived principals of a common long-lived agency; and a commitment effect due to the leverage exerted by today principal on tomorrow policy through the incentives he provides to this bureaucracy. We compare those effects and draw some conclusions for the endogenous design of the agency's legal status. |