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Optimal Agency Bias and Regulatory Review

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  • Ryan Bubb
  • Patrick L. Warren

Abstract

Why do bureaucratic principals appoint agents who hold different policy views from themselves? We posit an explanation based on the interplay between two types of agency costs: shirking on information production and policy bias. Principals employ biased agents because they shirk less. This creates an incentive for the principal to use review mechanisms that mitigate the resulting bias in the agents' decisions. The availability of such review mechanisms encourages principals to employ more extreme agents. We apply the theory to explain various features of the administrative state. In contrast to existing accounts, in our model the use by the president of ideological bureaucrats at regulatory agencies and centralized regulatory review are complements. The use of bias to mitigate shirking results in an amplification of the swings of regulatory policy and heightens the role of regulatory policy in partisan politics.

Suggested Citation

  • Ryan Bubb & Patrick L. Warren, 2014. "Optimal Agency Bias and Regulatory Review," The Journal of Legal Studies, University of Chicago Press, vol. 43(1), pages 95-135.
  • Handle: RePEc:ucp:jlstud:doi:10.1086/675258
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    References listed on IDEAS

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    1. Yeon-Koo Che & Navin Kartik, 2009. "Opinions as Incentives," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 815-860, October.
    2. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
    3. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    4. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-643, December.
    5. Gilligan, Thomas W & Krehbiel, Keith, 1987. "Collective Decisionmaking and Standing Committees: An Informational Rationale for Restrictive Amendment Procedures," Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(2), pages 287-335, Fall.
    6. repec:cup:apsrev:v:101:y:2007:i:03:p:605-620_07 is not listed on IDEAS
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    Cited by:

    1. Dhammika Dharmapala & Nuno Garoupa & Richard H. McAdams, 2016. "Punitive Police? Agency Costs, Law Enforcement, and Criminal Procedure," The Journal of Legal Studies, University of Chicago Press, vol. 45(1), pages 105-141.
    2. John M. de Figueiredo & Edward H. Stiglitz, 2015. "Democratic Rulemaking," NBER Working Papers 21765, National Bureau of Economic Research, Inc.
    3. Dima Yazji Shamoun & Bruce Yandle, 2016. "Asserting presidential preferences in a regulatory review bureaucracy," Public Choice, Springer, vol. 166(1), pages 87-111, January.
    4. Mueller Hannes, 2015. "Insulation or Patronage: Political Institutions and Bureaucratic Efficiency," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(3), pages 961-996, July.
    5. Pedro P. Barros & Steffen H. Hoernig, 2018. "Sectoral Regulators and the Competition Authority: Which Relationship is Best?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(3), pages 451-472, May.
    6. Berno Buechel & Gerd Muehlheusser, 2016. "Black Sheep or Scapegoats? Implementable Monitoring Policies under Unobservable Levels of Misbehavior," The Journal of Legal Studies, University of Chicago Press, vol. 45(2), pages 331-366.

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