A Theory of Soft Capture

[en] n this paper, wee propose a model for regulatory capture that is based on information transmission and asymmetric information. In a three-tier model, a regulator is charged by a political principal to provide a signal for the type of a regulated firm. Only the firm can observe his type and the production of a correlated signal with a given accuracy is costly for the regulator. The firm can costlessly provide an alternative signal of lower accuracy that is presented to the regulator. In a self-enforcing equilibrium, the regulator transmits the firm-produced signal, internalizes its own savings in information cost and the firm enjoys higher information rents. The main feature of soft capture is that it is not based on a reciprocity of favors but on a congruence of interests between the firm and the regulator.

Research Center/Unit :

LCII - Liège Competition and Innovation Institute - ULiège

Disciplines :

Microeconomics

Author, co-author :

Agrell, Per

Gautier, Axel ; Université de Liège - ULiège > HEC-Ecole de gestion : UER > Economie industrielle

Language :

English

Title :

A Theory of Soft Capture

Publication date :

July 2017

Journal title :

Scandinavian Journal of Economics

ISSN :

0347-0520

eISSN :

1467-9442

Publisher :

Blackwell Publishing, Oxford, United Kingdom

Volume :

119

Issue :

Pages :

571-596

Peer reviewed :

Peer Reviewed verified by ORBi

Funders :

F.R.S.-FNRS - Fonds de la Recherche Scientifique

Available on ORBi :

since 26 April 2012

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