generates regulatory risk. I show that this risk has a fluctuation effect that hurts both parties and an outputexpansion effect … that benefits one party. Consequently, at least one party dislikes regulatory risk. Moreover, both political parties gain … from eliminating regulatory risk when political divergence is small or the winning probability of the regulatoryriskaverse …

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 …