Phasing of deregulation: Normative versus positive objectives

✍ Scribed by Franz Wirl

• Publisher: Springer US
• Year: 1991
• Tongue: English
• Weight: 1007 KB
• Volume: 3
• Category: Article
• ISSN: 0922-680X
• DOI: 10.1007/bf00157613

✦ Synopsis

Deregulation is traditionally endorsed by economists but meets either little reception by politicians or is substantially weakened within the political process. Many papers discuss this aspect, primarily from a rent-seeking aspect. This paper emphasizes the dynamics of deregulation when consumers have sunk costs on the basis of a past regulatory regime. The paper proves first that deregulation should be radical rather than transitory within a conventional, normative framework, even if the consumers act naively and have to bear substantial adjustment costs. As a contrast, a positive model of a vote maximizing politician is introduced that explains why and when actual deregulation proceeds gradually. However, a politician should deregulate at an excessively radical rate at the beginning, if voters have a short memory and/or if demand adjusts sufficiently fast.