Political Economy, Uncategorized

Officials under the threat of reelection are more likely to conform with the prevailing public opinion but it is also easier for the public to monitor their actions. Constitutions should take the magnitude of these effects into account when prescribing whether the decision making power is allocated to officials who can get re-elected, to those who cannot or to the the public directly(i.e. deciding through a referendum).

Maskin & Tirole (2004) AER

Industrial Organization

A regulator usually has less information (about costs, technology, etc) than the firm it regulates. This can lead to strategic behaviour and inefficient results. While cost-plus regulation will lead to cost overruns, price cap systems can lead to huge rents for efficient firms. Optimal regulation must take into account these incentives and may not achieve first best levels of efficiency, but will trade off efficiency gains and distributional concerns.

Laffont & Tirole (1986) Journal of Political Economy