Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238236 
Year of Publication: 
2020
Series/Report no.: 
Working Papers in Economics and Statistics No. 2020-12
Publisher: 
University of Innsbruck, Research Platform Empirical and Experimental Economics (eeecon), Innsbruck
Abstract: 
Firms have incentives to influence regulators' decisions. In a dynamic setting, we show that a firm may prefer to capture regulators through the promise of a lucrative future job opportunity (i.e., the revolving-door channel) than through a hidden payment (i.e., a bribe). This is because the revolving door publicly signals the firm's eagerness and commitment to reward friendly regulators, which facilitates collusive equilibria. Moreover, the revolving-door channel need not require an explicit agreement between the firm and the regulator, but may work implicitly giving rise to an industry norm. This renders ineffective standard anti-corruption practices, such as whistle-blowing protection policies. We highlight that closing the revolving door may give rise to other inefficiencies. Moreover, we show that cooling-off periods may make all players worse off if timed wrongly. Opening the revolving door conditional on the regulator's report may increase social welfare.
Subjects: 
collusion
corruption
dynamic games
experts
regulation
regulatory capture
revolving door
JEL: 
D82
J45
K23
L14
L51
Document Type: 
Working Paper

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