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American Economic Journal: Economic Policy: Vol. 5 No. 1 (February 2013)

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Political Price Cycles in Regulated Industries: Theory and Evidence

Article 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.5.1.94

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)

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Authors

Moita, Rodrigo M. S. (Insper Institute, Sao Paulo)
Paiva, Claudio (CA State U, Channel Islands)

JEL Classifications

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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