Information Asymmetries And Regulatory Decision Costs: An Analysis Of U.S. Electric Utility Rate Changes 1980 - 2000

Date Added: Feb 2010
Format: PDF

The authors argue that information asymmetries between regulators and firms increase the administrative decision costs of initiating new policies due to the costs of satisfying evidentiary or ''Burden of proof'' requirements. They further contend that regulators with better information about regulated firms - that is, with lower information asymmetries - have lower decision costs, thereby facilitating regulator policy making. To empirically test the predictions, they examine the relationship between regulatory informational environments and changes to regulated rates for all investor-owned electric utilities from 1980 to 2000. They exploit several natural sources of variation in the informational environments of US state utility regulators.