Reference : A Theory of Soft Capture
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Business & economic sciences : Microeconomics
A Theory of Soft Capture
Agrell, Per [ > > ]
Gautier, Axel mailto [Université de Liège - ULg > HEC-Ecole de gestion de l'ULg : UER > Economie industrielle >]
[en] Regulation ; Capture ; Information
[en] n this paper, wee propose a model for regulatory capture that is based on information transmission and asymmetric information. In a three-tier model, a regulator is charged by a political principal to provide a signal for the type of a regulated firm. Only the firm can observe his type and the production of a correlated signal with a given accuracy is costly for the regulator. The firm can costlessly provide an alternative signal of lower accuracy that is presented to the regulator. In a self-enforcing equilibrium, the regulator transmits the firm-produced signal, internalizes its own savings in information cost and the firm enjoys higher information rents. The main feature of soft capture is that it is not based on a reciprocity of favors but on a congruence of interests between the firm and the regulator.

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