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Regulatory Quality Under Imperfect Oversight

Published online by Cambridge University Press:  26 July 2007

ETHAN BUENO DE MESQUITA  and
MATTHEW C. STEPHENSON
ETHAN BUENO DE MESQUITA
Affiliation:
Washington University
MATTHEW C. STEPHENSON
Affiliation:
Harvard Law School
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Abstract

We analyze the positive and normative implications of regulatory oversight when the policymaking agency can improve the quality of regulation through effort, but only some kinds of effort are observable by the overseer, and the overseer's only power is the ability to veto new regulation. Such oversight can increase the quality of agency regulation, but it also introduces inefficiencies—the agency underinvests in unobservable effort and overinvests in observable effort. Agencies have no incentive to conceal their activities from the overseer; the reforms that are likely to reduce inefficiency are therefore those that improve overseer expertise or lower the costs of agency disclosure, not those that compel disclosure. The normative implications depend on the relative severity of bureaucratic drift and slack problems. When slack is paramount, an overseer that is more anti-regulation than the agency or society improves social welfare, as long as it does not deter the agency from regulating entirely. When drift is paramount, oversight improves social welfare only when it deters regulation. In this case, regulatory oversight is weakly dominated by one of two alternatives: eliminating oversight or banning regulation.

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ARTICLES
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American Political Science Review , Volume 101 , Issue 3 , August 2007 , pp. 605 - 620
Copyright
© 2007 by the American Political Science Association

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