ESRC Centre for Economic Learning and Social Evolution
Abstract
Regulators appointed on finite contracts have an incentive to signal their worth to the job
market. This paper shows that, if contracts are sufficiently short, this can result in ‘minimal
squawk’ behaviour. That is, regulated firms publicise the quality of unfavourable decisions,
aware that regulators then set favourable policies more often to keep their professional
reputation intact. Terms of office vary across US states, prompting an empirical test using
firm-level data from the regulation of the US electric industry. Consistent with the theory,
we find that shorter terms are associated with fewer rate of return reviews and higher
residential electricity prices
