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The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs

David Martimort
The Review of Economic Studies
Vol. 66, No. 4 (Oct., 1999), pp. 929-947
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2566926
Page Count: 19
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The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs
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Abstract

The dynamics of regulation is analysed in a model where regulatory capture comes from the repeated interaction between an interest group and a regulatory agency. Regulatory institutions offer a framework for this dynamic process. They put constraints on the interest group's influence. The dynamics of regulation and its long-run outcome depend on the political principal's, the regulator's and the regulated firm's time preferences and their information. Some foundations for the transaction costs of side-contracting used in the standard literature on collusion are provided. Those transaction costs are linked to the precise nature of regulatory institutions.

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