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Working paper 01/032 - Abstract

Squawk and Capture: Influencing Appointed Regulators

Clare Leaver

A regulator appointed on a finite contract has an incentive to signal her worth to the job market. This paper shows that, if her tenure is sufficiently short, a regulated firm can exploit this incentive to secure policy favours. The firm captures its regulator by encouraging her to engage in ''minimal squawk'' behaviour (Hilton, 1972). Specifically, it reveals the quality of unfavourable decisions, aware that the regulator will set favourable policies more often to keep it silent and her professional reputation intact. Further results suggest that capture may be limited by explicit incentive schemes and changes in the regulatory pool.

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