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Regulator Heterogeneity and Endogenous Efforts to Close the Information Asymmetry Gap

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Author Info

  • Jeffrey T. Macher
  • John W. Mayo
  • Jack A. Nickerson

Abstract

The now standard principal-agent model of regulator-firm interactions typically assumes the presence of a single regulator and an exogenously determined information asymmetry between the principal and the agent. In this paper we draw upon a unique data set of regulatory inspections conducted by the U.S. Food and Drug Administration (FDA) to explore the consistency of these assumptions with the actual practice of regulators. We find that the canonical assumptions of the agency paradigm are strained by, if not altogether inconsistent with, the key practical realities of regulation by the FDA. Our analysis uncovers several dimensions along which regulators actively and endogenously seek to close the information asymmetry gap. We also find considerable regulator heterogeneity, which in turn depends in part upon the specific training and experience of individual regulators.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/658484
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File URL: http://www.jstor.org/stable/full/10.1086/658484
Download Restriction: Access to the online full text or PDF requires a subscription.

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Bibliographic Info

Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 54 (2011)
Issue (Month): 1 ()
Pages: 25 - 54

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Handle: RePEc:ucp:jlawec:doi:10.1086/658484

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Web page: http://www.journals.uchicago.edu/JLE/

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Cited by:
  1. Fremeth, Adam R. & Holburn, Guy L. F., 2010. "Information Asymmetries and Regulatory Decision Costs: An Analysis of U.S. Electric Utility Rate Changes 1980–2000," Working paper 595, Regulation2point0.
  2. Jodi L. Short & Michael W. Toffel & Andrea Read Hugill, 2013. "Monitoring the Monitors: How Social Factors Influence Supply Chain Auditors," Harvard Business School Working Papers 14-032, Harvard Business School, revised Feb 2014.

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