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Delegation in Regulation (coauthored with Tore Nilssen, University of Oslo)

Wednesday 28 October 2015, 1.00PM to 2.00pm

Speaker(s): Tapas Kundu (Tromso)

Abstract: We develop a model to discuss government’s incentives to delegate to bureaucrats to deal with industry. The industry consists of a polluting firm with private information about its production technology. Government requires the use of bureaucrats to implement a transfer-based regulation policy. We assume that implementation of a transfer-based policy has a bureaucratic cost as bureaucrats consume a fraction of the transfer. In this set up, we study a delegation problem, in which government decides the extent of regulatory discretion given to bureaucrats. Government faces a trade-off in its delegation decision. Specifically, bureaucrats have knowledge of the firm that government does not have, but at the same time, they have other preferences than the government (bureaucratic drift). We study government’s incentives to delegate decision-making authority to bureaucrats in presence of bureaucratic cost and bureaucratic drift. We discuss whether using partial delegation, i.e., delegation followed by laws and regulations to restrict bureaucratic discretion, might help. Our findings suggest that the extent of bureaucratic discretion reduces with bureaucratic drift but changes non-monotonically with bureaucratic cost. We introduce two regulatory frameworks, which we call respectively procurement and permits, which differ in the direction of transfer between government and industry, and find that partial delegation works differently in the two frameworks. Our analyses generate a set of testable predictions regarding the optimal uses of the two regulatory settings.

Host: Anindya Bhattacharya

Location: ARRC Auditorium ARC 014, Alcuin College

Admission: All welcome