Regulator Heterogeneity and Endogenous Efforts to Close the Information Asymmetry Gap

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.