How much discretion for risk regulators?

Hiriart, Yolande; Martimort, David

doi:10.1111/j.1756-2171.2012.00166.x

Cited by 38 publications

(22 citation statements)

References 45 publications

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“…Our article is also related to Hiriart and Martimort () who argue that delegation may be optimal in a hierarchy of congress‐regulator‐firm. The regulator offers an incentive contract to the firm to limit some potential damage (e.g., pollution) by the firm.…”

Section: Introductionmentioning

confidence: 76%

“…Besides the reasons discussed in the introduction to motivate delegation, there is also a literature that directly justifies delegation over centralization. The trade‐off between control and the use of better information is the focus in the articles by Dessein () and Hiriart and Martimort (). Beaudry and Poitevin () model how delegation can address the principal's lack of commitment ability.…”

Section: Extensionsmentioning

confidence: 99%

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Contracts offered by bureaucrats

Khalil

Kim

Lawarrée

2013

The RAND J of Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Contracts Offered by Bureaucrats AbstractWe examine the power of incentives in bureaucracies by studying contracts offered by a bureaucrat to her agent. The bureaucrat operates under a fixed budget, optimally chosen by a funding authority, and she can engage in policy drift, which we define as inversely related to her intrinsic motivation. Interaction between a fixed budget and policy drift results in lowpowered incentives. We discuss how the bureaucrat may benefit from stricter accountability as it leads to larger budgets. Low-powered incentives remain even in an alternative centralized setting, where the funding authority contracts directly with the agent using the bureaucrat to monitor output.JEL-Code: D820.

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Section: Introductionmentioning

confidence: 76%

Section: Extensionsmentioning

confidence: 99%

Contracts offered by bureaucrats

Khalil

Kim

Lawarrée

2013

The RAND J of Economics

View full text Add to dashboard Cite

show abstract

“…In general, the delegation of any kinds is less likely to be optimal if the agent is more biased (see for instance Aghion and Tirole (1997), Dessein (2002), and Hiriart and Martimort (2012)). However, the proposition indicates that the opposite is true if it is the delegation of "information verification."…”

Section: The Optimal Verification Systemmentioning

confidence: 98%

Delegation of information verification

Kim

2013

International Journal of Industrial Organization

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“…22 Notice that the contract with the regulator is designed prior to the regulatory contract (q, t). As a result, commitment to the regulatory contract (t i , q i ; t i , q i ) after observing σ i might be a concern.…”

Section: Comparisonsmentioning

confidence: 99%

A Theory of Soft Capture

Agrell

Gautier

2017

Scandinavian J Economics

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This paper proposes an alternative model for capture that it is not based on reciprocity but on congruence of interests between the firm and the regulator. A regulator is charged by a political principal to provide an imperfect signal for the type of a regulated firm. Only the firm can observe its type and the production of a signal is costly. The firm can provide a costless alternative signal of lower accuracy to the regulator. In a self-enforcing equilibrium, the regulator transmits the firm-produced signal, saves information gathering cost and the firm enjoys higher information rents.Regulatory capture is an area that has attracted considerable attention from both academia and practitioners in legal and organizational contexts. Generally, the notion that an agency monitoring a sector in order to prevent abuse of market power or to insure non-discriminatory service provision, is unduly influenced by the very firms that it is set to supervise is per se a justified motivation to scrutinize regulatory design.Capture is often analyzed using a three-layer hierarchy composed of a political principal (government), a regulatory agency and an industry or a firm. Regulatory capture is then a side agreement between the regulator and the firm to act against the interests of the political principal. 1 When the regulatory environment is designed under asymmetric information, capture originates in the combination of regulatory discretion and information rents left to the firm (Tirole, 1986; Laffont and Tirole 1993, chapter 11).In most capture models, the firm influences the regulatory behavior by a mechanism based on threats 2 (damaged reputation) or rewards (bribes, revolving doors); see Dal Bó (2006) for a recent survey. Capture here is based on an exchange of favors between the regulator and the regulated firm. The regulator leaves extra rents to the firm, for instance by not disclosing valuable information or by lenient enforcement of regulations. In return, the firm or the industry offers a bribe 3 or the possibility of post-regulatory employment in a regulated firm (revolving doors). Taking the possibility of capture into account, the government optimally limits the regulatory discretion (Hiriart and Martimort, 2012) and/or decentralizes its objective to the regulator who is then accountable for the regulatory outcome.

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How much discretion for risk regulators?

Cited by 38 publications

References 45 publications

Contracts offered by bureaucrats

Contracts offered by bureaucrats

Delegation of information verification

A Theory of Soft Capture

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