Bargaining Theory and Regulatory Reform: The Political Logic of Inefficient Regulation

Posted: 30 Mar 2000

See all articles by David B. Spence

David B. Spence

University of Texas at Austin – McCombs School of Business – Department of Business, Government & Society; University of Texas at Austin - School of Law; University of Texas at Austin - Kay Bailey Hutchison Center for Energy, Law & Business

Lekha Gopalakrishnan

University of Texas Law School

Abstract

Economists and others have long argued that the American regulatory system is unnecessarily inefficient. Critics charge that the system is both substantively inefficient, in that it sometimes mandates the use of inefficient means for achieving a regulatory goal, and procedurally inefficient, in its over-reliance on rules. These arguments have led to a wave of regulatory reform experiments in the federal bureaucracy, many of which seek to promote positive-sum changes in regulatory policy through bargaining among private- and public-sector stakeholders. As several commentators have noted, most of these regulatory reforms have not met expectations in that bargaining participants often forgo positive-sum changes in the status quo. Those same commentators have offered a variety of explanations for these failures, most of which (we argue) are unpersuasive or incomplete. We propose another explanation drawn from the standard bargaining literature in economics, one that seems to explain the trajectory of recent regulatory reforms. We argue that in the context of political conflict over policy changes, participants in these bargaining processes view positive sum policy changes in zero sum terms. That is, they bargain strategically, using their power to veto these positive-sum changes in order to extract further policy concessions from other stakeholders. This revelation has important implications for the future of this kind of regulatory reform.

JEL Classification: K23

Suggested Citation

Spence, David B. and Spence, David B. and Gopalakrishnan, Lekha, Bargaining Theory and Regulatory Reform: The Political Logic of Inefficient Regulation. Available at SSRN: https://ssrn.com/abstract=207428

David B. Spence (Contact Author)

University of Texas at Austin – McCombs School of Business – Department of Business, Government & Society ( email )

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HOME PAGE: https://law.utexas.edu/faculty/dspence/

University of Texas at Austin - School of Law ( email )

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University of Texas at Austin - Kay Bailey Hutchison Center for Energy, Law & Business ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

Lekha Gopalakrishnan

University of Texas Law School

727 East Dean Keeton Street
Austin, TX 78705
United States

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