Accountability in Government and Regulatory Policies: Theory and Evidence

by Carmine Guerriero

A key aspect of institutional design is the degree of accountability to which the officials involved in regulation are subjected. Elected officials strive for re-election, appointed ones are career-concerned. Provided that the effort exerted to uncover the firm's unknown cost is sufficiently efficient in swaying votes, elected officials produce more information than appointed ones do. As a result, both prices and ex post rents are higher under appointment, and society will prefer this last institution whenever investment inducement is sufficiently relevant or shareholders are sufficiently more powerful than consumers. Data on electricity prices and costs, and the methods of selecting top-level regulators and High court judges for a panel of forty-nine U.S. states confirm the model's predictions.