The paper provides a tractable, analytical framework to study regulatory risk. Regulatory risk is captured by … funds. Results are as follows: 1) The regulator's reaction to regulatory risk depends on the curvature of aggregate demand …. 2) It yields a positive information rent effect exactly when demand is convex. 3) Firms benefit from regulatory risk …

This paper investigates political uncertainty as a source of regulatory risk. It shows that political parties have … incentives to reduce regulatory risk actively: Mutually beneficial pre-electoral agreements that reduce regulatory risk always … skewed. These results follow from a fluctuation effect of regulatory risk that hurts parties and an output-expansion effect …