Seeking Truth for Power: Informational Strategy and Regulatory Policy Making

65 Pages Posted: 12 May 2004 Last revised: 17 Jan 2010

See all articles by Cary Coglianese

Cary Coglianese

University of Pennsylvania Law School

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Edward (Ted) A. Parson

University of California, Los Angeles (UCLA) - School of Law

Date Written: January 13, 2010

Abstract

Whether regulating mutual funds or chemical manufacturers, government's policy decisions depend on information possessed by industry. Yet it is not in any industry's interests to share information that will lead to costly regulations. So how do government regulators secure needed information from industry? Since information disclosed by any firm cannot be retrieved and can be used to regulate the entire sector, industry faces a collective action problem in maintaining silence. While collective silence is easy to maintain if all firms' interests are aligned, individual firms' payoffs for disclosure can vary due to heterogeneous effects of regulation and differing expectations about the regulator's expected actions with or without any given information. This leads to regulators' first strategy: exploit asymmetries in firms' interests in disclosure. Regulators' second strategy comes from their ability to create asymmetries of interest, namely by selectively rewarding or punishing individual firms. Both of these strategies work best when pursued informally, in less visible ways, since other firms can be expected to inflict retribution on a squealer. Although informal relationships have been long deplored due to the risk of regulatory bias or capture, our analysis shows how they can be beneficial to government in playing the information game. This has important implications for regulatory procedure. Since total transparency would detract from government's ability to secure valuable information, administrative law needs to balance between the competing needs of transparency to prevent abuse and opacity to facilitate information exchange.

Posted paper, uploaded January 2010, is the published version of the working paper originally posted May 2004.

Keywords: Regulatory Strategy, Information Asymmetry, Administrative Law

JEL Classification: D73, D82, K23, D78, D83

Suggested Citation

Coglianese, Cary and Zeckhauser, Richard J. and Parson, Edward (Ted) A., Seeking Truth for Power: Informational Strategy and Regulatory Policy Making (January 13, 2010). Minnesota Law Review, Vol. 89, p. 277, 2004; Stanford Public Law Working Paper No. 93; Harvard Public Law Working Paper No. 101; KSG Working Paper No. RWP04-021. Available at SSRN: https://ssrn.com/abstract=545104 or http://dx.doi.org/10.2139/ssrn.545104

Cary Coglianese (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-6867 (Phone)

HOME PAGE: http://www.law.upenn.edu/coglianese

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

Edward (Ted) A. Parson

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

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