Optimal Agency Bias and Regulatory Review

51 Pages Posted: 15 Jan 2013 Last revised: 25 Oct 2013

See all articles by Ryan Bubb

Ryan Bubb

New York University School of Law; European Corporate Governance Institute (ECGI)

Patrick L. Warren

Clemson University - John E. Walker Department of Economics

Date Written: January 15, 2013


Why do bureaucratic principals appoint agents who hold different policy views from themselves? We posit an explanation based on the interplay between two types of agency costs: shirking on information production and policy bias. Principals employ biased agents because they shirk less. This creates an incentive for the principal to use review mechanisms that mitigate the resulting bias in the agents' decisions. The availability of such review mechanisms encourages principals to employ more extreme agents. We apply the theory to explain various features of the administrative state. In contrast to existing accounts, in our model the use by the president of ideological bureaucrats at the regulatory agencies and centralized regulatory review are complements. The use of bias to mitigate shirking results in an amplification of the swings of regulatory policy and heightens the role of regulatory policy in partisan politics.

Suggested Citation

Bubb, Ryan and Warren, Patrick L., Optimal Agency Bias and Regulatory Review (January 15, 2013). NYU School of Law, Public Law Research Paper No. 12-69, NYU Law and Economics Research Paper No. 12-47, Available at SSRN: https://ssrn.com/abstract=2201042 or http://dx.doi.org/10.2139/ssrn.2201042

Ryan Bubb (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
(212)992-8871 (Phone)

HOME PAGE: http://https://its.law.nyu.edu/facultyprofiles/profile.cfm?personID=34148

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Patrick L. Warren

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

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