Environmental Regulation Informed by Biased Stakeholders

Public consultations are widely used in regulatory processes, allowing stakeholders to present their viewpoints despite their inherent biases. Some stakeholders, such as firms, are known to be pro-business, while others, such as environmental NGOs, are pro-environment. Other such as national authorities have unknown bias. We develop a framework to analyze how a regulator processes information provided by biased stakeholders. We show that the regulator follows the advice that runs counter to a stakeholder's typical bias: to regulate if firms so advise and not to regulate if environmental organizations so advise. Without such advice, she prioritizes the comments from stakeholders with unknown biases. We then contrast our theoretical results with the regulation of chemicals in the European Union. Consistent with the model's predictions, support for regulation is more strongly associated with regulatory outcomes when it comes from firms than from NGOs or environmental organizations. We also find that regulatory decisions are more strongly correlated with comments from national authorities than from other stakeholders, both in terms of participation and relative support.