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Regulator Heterogeneity and Endogenous Efforts to Close the Information Asymmetry Gap

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

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://dx.doi.org/10.1086/658484
Download Restriction: Access to the online full text or PDF requires a subscription.

File URL: http://dx.doi.org/10.1086/658484
Download Restriction: Access to the online full text or PDF requires a subscription.

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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
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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  1. Khalil, F., 1992. "Auditing Without Commitment," Working Papers 92-15, University of Washington, Department of Economics.
  2. David P. Baron & David Besanko, 1984. "Regulation, Asymmetric Information, and Auditing," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 447-470, Winter.
  3. Maxwell, John W & Lyon, Thomas P & Hackett, Steven C, 2000. "Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 583-617, October.
  4. Feinstein, Jonathan S, 1989. "The Safety Regulation of U.S. Nuclear Power Plants: Violations, Inspections, and Abnormal Occurrences," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 115-54, February.
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