The 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 exist and fully eliminate it when political
divergence is small or electoral uncertainty is appropriately
skewed. These results follow from a fluctuation effect of
regulatory risk that hurts both parties and an
output--expansion effect that benefits at most one party. Due
to commitment problems, politically independent regulatory
agencies are needed to implement pre--electoral agreements. The
delegation may require only partial rather than full political
independence.