TESTING REGULATORY CONSISTENCY

Authors

  • ROBERT BREUNIG,

    1. Breunig: Professor, Research School of Economics, Australian National University, Canberra, ACT 0200, Australia. Phone +61 2 6125 2148, Fax +61 2 6125 0744. E-mail Robert.Breunig@anu.edu.au
    Search for more papers by this author
  • FLAVIO M. MENEZES

    1. Menezes: Professor, School of Economics, University of Queensland, Brisbane, QLD 4072, Australia. Phone +61 07 3365 6340, Fax +61 07 3365 7299, E-mail f.menezes@economics.uq.edu.au
    Search for more papers by this author
    • R.B. and F.M.M. acknowledge the financial support of the Australian Research Council (ARC Grants DP 0557885 and 0663768). The authors thank Fernando Camacho, Steven Hamilton, and Tom Gole, participants at the 2008 Association for Public Economic Theory Conference, Robert Michaels, and an anonymous referee for useful comments. The authors are thankful to Cardy Man for research assistance. The usual disclaimer applies.


Abstract

We undertake an analysis of regulatory consistency using a database of publicly available regulatory decisions in Australia. We propose a simple exploratory model which allows us to test for regulatory consistency across jurisdictions and industries without detailed knowledge of the regulatory process. We compare two measures using our approach—the weighted average cost of capital (WACC) and the proportion of firms' revenue requirement claims disallowed by the regulator. Our comparison suggests that the WACC is a very poor measure of regulatory consistency. Moreover, our empirical results may be interpreted as indicating that a range of measures ought to be considered when assessing regulatory consistency. Our results also provide an empirical foundation for theoretical modeling of regulatory processes. (JEL L51)

Ancillary