Delegation of Regulation

Journal of Industrial Economics, Forthcoming

39 Pages Posted: 20 Apr 2018 Last revised: 8 Apr 2020

See all articles by Tapas Kundu

Tapas Kundu

Oslo Business School, Oslo Metropolitan University; UiT the Arctic University of Norway

Tore Nilssen

University of Oslo - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 5, 2019

Abstract

We discuss a government’s incentives to delegate regulation to bureaucrats. The government faces a trade-off in its delegation decision: bureaucrats have knowledge of the firms in the industry that the government does not have, but at the same time, they have other preferences than the government, so-called bureaucratic drift. We study how the bureaucratic drift and the firm's private information interact to affect the incentives to delegate regulation. Furthermore, we discuss how constrained delegation, i.e., delegation followed by laws and regulations that restrict bureaucratic discretion, increases the scope of delegation. We characterize the optimal delegation rule and show that, in equilibrium, three different regimes can arise that differ in the extent of bureaucratic discretion: no delegation, strict delegation, and weak delegation. We find that bureaucratic discretion reduces with bureaucratic drift. Because of the nature of the regulation problem, the effect of increased uncertainty about the firm's technology on the bureaucratic discretion depends on how that uncertainty changes.

Keywords: Bureaucracy, Delegation, Regulation

JEL Classification: D02, H11, L51

Suggested Citation

Kundu, Tapas and Nilssen, Tore, Delegation of Regulation (December 5, 2019). Journal of Industrial Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3155236 or http://dx.doi.org/10.2139/ssrn.3155236

Tapas Kundu

Oslo Business School, Oslo Metropolitan University ( email )

Pilestredet 35
Oslo, 0167
Norway

HOME PAGE: http://www.tapaskundu.net

UiT the Arctic University of Norway ( email )

Breivika
Tromsø, NO-9037
Norway

HOME PAGE: http://www.tapaskundu.net

Tore Nilssen (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

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