Abstract
This paper quantitatively assesses time inconsistency, moral hazard, and political ideology in monopoly regulation of electricity distribution. We specify and estimate a dynamic model of utility regulation featuring investment and moral hazard. We find that (1) there is under-investment in electricity distribution capital aiming to reduce power outages, (2) more conservative political environments have higher regulated returns, and (3) more electricity is lost in distribution in more conservative political environments. We quantify the value of regulatory commitment in inducing more investment. Conservative regulators mitigate welfare losses due to time inconsistency, but worsen losses from moral hazard.
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