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The regulation and self-regulation of a complex industry

Author(s): McCarty, Nolan M.

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Abstract: © 2017 by the Southern Political Science Association. All rights reserved. I develop a model of policy making in complex domains where bureaucrats find it very difficult to establish autonomous sources of expertise, so regulators are highly dependent on the regulated industry and its willingness to engage in selfregulation. In the model, a legislative principal decides whether to delegate the power to an agency to regulate the activities of a firm or industry. The policy domain is complex in that knowledge of the implications of different policy choices is concentrated in the firm. The agency can learn about the policy environment only through monitoring the firm's efforts at self-regulation. The main result is that, as policy becomes more complex, regulatory outcomes are increasingly biased toward those preferred by the firm. Moreover, when the agency has preferences that diverge from the firm's, the firm invests less in its own self-regulatory efforts for fear that its policy investments will be expropriated.
Publication Date: 19-Jul-2017
Citation: McCarty, N. (2017). The regulation and self-regulation of a complex industry. Journal of Politics, 79 (4), 1220 - 1236. doi:10.1086/692474
DOI: doi:10.1086/692474
ISSN: 0022-3816
EISSN: 1468-2508
Pages: 1 - 17
Type of Material: Journal Article
Journal/Proceeding Title: Journal of Politics
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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