Working Paper: CEPR ID: DP10838
Authors: Roland Strausz
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.
Keywords: electoral uncertainty; independent regulatory agency; regulation; regulatory risk
JEL Codes: D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fluctuation effect (E32) | negative welfare impact on both parties (D62) |
| output expansion effect (E23) | benefits at least one party (D86) |
| fluctuation effect (E32) | dislike regulatory risk by at least one party (G18) |
| efficient pre-electoral bargaining outcomes (D72) | elimination of all regulatory risk (G18) |
| political incentives (D72) | institutionalization of independent regulatory agencies (L51) |
| electoral uncertainty (K16) | independence of regulatory agencies (L51) |