We investigate regulation as the outcome of a bargaining process between a regulator and a regulated firm. The regulator is required to monitor the firm’s costs and to reveal its information to a political principal (Congress). In this setting, we explore the scope for collusion between the regulator and the firm, which results in the manipulation of the regulator’s report on the firm’s costs to Congress. The firm’s benefit of collusion arises from the higher price the efficient firm is allowed to charge when the regulator reports that it is inefficient. However, a higher price reduces the gains from trade the parties can share in the bargaining process. As a result of this trade-off, the efficient firm has a stake in collusion only if the regulator’s bargaining power in the regulatory relationship is relatively high. Then, we derive the optimal institutional response to collusion and characterize the conditions under which allowing collusion is desirable.

Fiocco, R., Gilli, M. (2016). Bargaining and collusion in a regulatory relationship. JOURNAL OF ECONOMICS, 117(2), 93-116 [10.1007/s00712-015-0456-2].

Bargaining and collusion in a regulatory relationship

GILLI, MARIO ROBERTO
2016

Abstract

We investigate regulation as the outcome of a bargaining process between a regulator and a regulated firm. The regulator is required to monitor the firm’s costs and to reveal its information to a political principal (Congress). In this setting, we explore the scope for collusion between the regulator and the firm, which results in the manipulation of the regulator’s report on the firm’s costs to Congress. The firm’s benefit of collusion arises from the higher price the efficient firm is allowed to charge when the regulator reports that it is inefficient. However, a higher price reduces the gains from trade the parties can share in the bargaining process. As a result of this trade-off, the efficient firm has a stake in collusion only if the regulator’s bargaining power in the regulatory relationship is relatively high. Then, we derive the optimal institutional response to collusion and characterize the conditions under which allowing collusion is desirable.
Articolo in rivista - Articolo scientifico
Asymmetric information; Auditing; Bargaining; Collusion; Regulation;
Asymmetric Information, Bargaining, Regulation
English
14-set-2015
2016
117
2
93
116
reserved
Fiocco, R., Gilli, M. (2016). Bargaining and collusion in a regulatory relationship. JOURNAL OF ECONOMICS, 117(2), 93-116 [10.1007/s00712-015-0456-2].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/88772
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