Legislators V. Regulators: The Case of Low Power FM Radio

Abstract

The Federal Communications Commission rule making for low-power FM radio was widely reported as an instance where Congress sharply rebuked a regulatory agency for enacting rules too favorable to entrants. Because rival policy optima are quantifiable in this case, the preferences of Congress and the Commission can be directly evaluated. While policy differences between Congress and the regulatory agency were visible to interest groups, they signified a negligible increment when compared to the efficient policy solution. A financial event study supports this interpretation, as radio broadcasters’ equity values were not materially affected by the competitive entry envisioned by the Commission. This suggests that reportedly sharp differences between Congressional and agency political preferences can be trivial in economic terms, as predicted by the Congressional Dominance view of regulation.