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Renegotiation design with multiple regulators. (English) Zbl 0939.90010
Summary: One striking feature of the internal organization of governments is the existence of multiple regulators. The author explains this organizational choice as coming from the government’s limited ability to commit. The separation of powers between two regulators is modeled as a Stackelberg common agency game. With respect to the case of a single regulator, the allocative efficiency and the regulated firm’s informational rent are both reduced in the unique equilibrium of this game. However, when regulators have a limited ability to commit, this static cost of regulators separation becomes a dynamic benefit. Separation makes renegotiation harder and improves commitment.

90B70 Theory of organizations, manpower planning in operations research
91A05 2-person games
91A25 Dynamic games
Full Text: DOI
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