Accountability in government and regulatory policies: Theory and evidence

A key aspect of institutional design is the degree of accountability to which the officials involved in regulation are subjected. While elected officials strive for re-election, appointed ones are career-concerned. Provided that the effort exerted to uncover the firm's unknown cost is sufficiently effective in swaying votes, elected officials produce more information than appointed ones do. This implies that, whenever the demand is inelastic, both allocative distortions and the firm's rent are higher under appointment. Hence, appointment will prevail on election when investment inducement is sufficiently relevant and shareholders are sufficiently more powerful than consumers. Data on electricity rates and costs, and the methods of selecting top-level regulators and appellate judges for a panel of forty-seven U.S. states confirm these predictions.