Abstract
Empirical tests of the economic theory of regulation have typically consisted of estimation of a model of some observed regulatory decision, with various interest group variables incorporated as exogenous determinants of that decision. Statistical significance of the coefficients of these interest group variables is then taken as empirical support for this theory. Here, a different approach is adopted. We specify seven alternative models based upon: (1) the economic theory of regulation, (2) alternative theories of regulatory behavior, and (3) simple rules of thumb. Model selection tests are then performed. Our findings reveal that the economic theory of regulation consistently outperforms the alternative models.
Similar content being viewed by others
References
Baumol, W. J., and R. E. Quandt. 1964. “Rules of Thumb and Optimally Imperfect Decisions”.American Economic Review 54 (March): 23–46.
Davidson, R., and T. G. MacKinnon. 1981. “Several Tests for Model Specification in the Presence of Alternative Hypotheses”.Econometrica 49: 781–93.
Dougan, W. R., and M. C. Munger. 1989. “The Rationality of Idealogy”.Journal of Law and Economics 32 (April): 119–42.
Hagerman, R. L., and B. T. Ratchford. 1978. “Some Determinants of Allowed Rates of Return on Equity to Electric Utilities”.Bell Journal of Economics and Management Science 9:46–55.
Hajiran, H., D. R. Kamerschen., and J. B. Legler. 1986. “The Economic and Political Determinants of the Requested-Granted Rate of Return”, inTelecommunications in the Post-Divestiture Era, A. L. Danielsen and D. R. Kamerschen, eds., Lexington, Mass.: Lexington Books.
Im, B. G., D. L. Kaserman., and F. Melese. 1988. “Rent Seeking and the Allowed Rate of Return: A Recursive Model”.Review of Industrial Organization 3 (Fall): 27–51.
Im, B. G., D. L. Kaserman., and F. Melese. 1989. “Endogenous Regulation and the Firm's Regulatory Expenditures”.Applied Economics 21: 375–85.
Joskow, P. L. 1972. “The Determination of the Allowed Rate of Return in a Formal Regulatory Hearing”.Bell Journal of Economics and Management Science 5: 335–58.
Kalt, J. P., and M. A. Zupan. 1984. “Capture and Idealogy in the Economic Theory of Politics”.American Economic Review 74 (June): 279–300.
Kalt, J. P., and M. A. Zupan. 1990. “The Apparent Idealogical Behavior of Legislators: Testing for Principal-Agent Slack in Political Institutions”.Journal of Law and Economics 33 (April): 103–31.
Kaserman, D. L., L. R. Kavanaugh., and R. C. Tepel. 1984. “To Which Fiddle Does the Regulator Dance? Some Empirical Evidence”.Review of Industrial Organization 1:246–58.
Kaserman, D. L., J. W. Mayo., and J. E. Flynn. 1990. “Cross-Subsidization in Telecommunications: Beyond the Universal Service Fairy Tale”.Journal of Regulatory Economics 2 (September): 231–49.
Kau, J. B., and P. H. Rubin. 1979. “Self-Interest, Idealogy, and Logrolling in Congressional Voting”.Journal of Law and Economics 22 (October): 365–84.
Maddala, G. S. 1988.Introduction to Econometrics. New York: Macmillan Publishing Company.
Mizon, G. E., and J. F. Richard. 1986. “The Encompassing Principle and Its Application to Testing Nonnested Hypotheses”.Econometrica 54: 657–78.
Naish, H. F. 1990. “The Near Optimality of Mark-Up Pricing”.Economic Inquiry 28 (July): 555–85.
Peltzman, S. 1976. “Toward a More General Theory of Regulation”,Journal of Law and Economics 19:211–40.
Posner, R. A. 1974. “Theories of Economic Regulation”.Bell Journal of Economics and Management Science 5: 335–58.
Roberts, R. B., G. S. Madalla., and G. Enholm. 1978. “Determinants of the Requested Rate of Return and the Rate of Return Granted in a Formal Regulatory Process”.Bell Journal of Economics 9 (Autumn): 611–21.
Stigler, G. J. 1971. “The Theory of Economic Regulation”.Bell Journal of Economics and Management Science 2: 3–21.
Weingast, B. R., and M. J. Moran. 1983. “Bureaucratic Discretion or Congressional Control? Regulatory Policy Making by the Federal Trade Commission”.Journal of Political Economy 91 (October): 765–800.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Caudill, S.B., Im, BG. & Kaserman, D.L. Modeling regulatory behavior: The economic theory of regulation versus alternative theories and simple rules of thumb. J Regul Econ 5, 251–262 (1993). https://doi.org/10.1007/BF01065953
Issue Date:
DOI: https://doi.org/10.1007/BF01065953