Competition Politics: A Political Economy of Antitrust Regulation in Developing Countries

Posted by D. Daniel Sokol

Stephen J. Weymouth, University of California, San Diego (Political Science) has a new piece on Competition Politics: A Political Economy of Antitrust Regulation in Developing Countries.

ABSTRACT: Many developing countries have established competition (antitrust) agencies in recent years, with the aim of eroding anti-competitive rents that may accrue in the absence of regulatory oversight. Other countries have no formal competition agencies. What explains the decision of governments to delegate regulatory authority to independent agencies? This paper presents a simple model demonstrating that the likelihood of delegation decreases with the relative political strength of incumbent firms, who benefit from regulatory laxity.The model shows that incumbent firms’ strength decreases (i.e., delegation becomes more likely) in countries with: 1) competition for political office, and 2) “personalistic” electoral institutions, by increasing the individual accountability of politicians. I test the argument by constructing a new dataset covering over 100 developing countries over the period 1975-2006 that records the year of passage of laws establishing competition agencies. I model the decision to delegate to an agency using proportional hazard models. Consistent with my theory, competition for political office speeds up the adoption of competition laws that delegate authority to regulatory agencies. Furthermore, I find that personalistic electoral rules deter the ability of the incumbent interest group to block these competition policy reforms.