Political Price Cycles in Regulated Industries: Theory and Evidence
American Economic Journal: Economic Policy
vol. 5,
no. 1, February 2013
(pp. 94-121)
Abstract
The early work of Stigler (1971) treats the regulatory process as the arbitration of conflicting economic and political interests rather than a pure welfare-maximizing effort. This paper builds on these ideas and models the regulatory process as a game where the industry-lobby, consumers-voters, and a regulator-politician interact to define the regulated price, in alternating electoral and non-electoral periods. The equilibrium that emerges consists of a fully rational political price cycle in a regulated industry. Using monthly data for regulated gasoline and electricity prices from Brazil, we find strong evidence pointing towards the existence of electoral price cycles in both markets. (JEL D72, L51, L71, L78, L94, L98, O14)Citation
Moita, Rodrigo M. S., and Claudio Paiva. 2013. "Political Price Cycles in Regulated Industries: Theory and Evidence." American Economic Journal: Economic Policy, 5 (1): 94-121. DOI: 10.1257/pol.5.1.94Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- L51 Economics of Regulation
- L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
- L78 Industry Studies: Primary Products and Construction: Government Policy
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
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