An international comparison of regulatory capture and regulatory outcomes. The case of pension regulators in Ireland and the United States
| Date | 14 November 2016 |
| Published date | 14 November 2016 |
| Pages | 383-401 |
| DOI | https://doi.org/10.1108/JFRC-01-2016-0005 |
| Author | John Turner,Gerard Hughes,Michelle Maher |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
An international comparison of
regulatory capture and
regulatory outcomes
The case of pension regulators in Ireland and
the United States
John Turner
Pension Policy Center, Washington, District of Columbia, USA
Gerard Hughes
Trinity Business School, University of Dublin Trinity College,
Dublin, Ireland, and
Michelle Maher
Department of Sociology, National University of Ireland Maynooth,
Maynooth, Ireland
Abstract
Purpose – This paper aims to analyze how the administrative structure of pension regulators affects
regulatory capture or regulatory inuence. It uses a historical institutionalist methodology to analyze
regulatory capture.
Design/methodology/approach – The authors argue that the less complex allocation of regulatory
authority in Ireland makes it more susceptible to regulatory capture or regulatory inuence by the
regulated industry than in the USA. Also, it is argued that stand-alone agencies are more susceptible to
regulatory capture than are agencies that are embedded within larger departments of government. The
authors present a ve-step process in regulatory capture, with the later steps being used by the
regulated industry if the earlier ones have failed.
Findings – The authors nd that if the regulated industry has difculty achieving regulatory capture
through inuencing the executive branch of government, it can also attempt to inuence the legislative
and judicial branches, as evidenced by a regulatory episode the USA has recently completed. Ireland has
also recently completed reforms that may make regulatory capture more difcult. With a complex
regulatory structure including overlapping authority as in the USA, when one agency has been strongly
inuenced by the regulated industry, another agency may take action to protect the public.
Originality/value – The paper presents international evidence as to the effect of the administrative
structure of regulators on regulatory outcomes. It tests a hypothesis that the more complex, overlapping
allocation of regulatory authority in the USA makes it less susceptible to regulatory capture.
Keywords Complexity theory, Historical institutionalism, Pension regulators, Regulatory capture,
Regulatory economics, Regulatory system
Paper type Research paper
1. Introduction
The study of capture or inuence of regulators by the regulated industry has a long
history in academic research, including a recent edited book that summarizes and
The current issue and full text archive of this journal is available on Emerald Insight at:
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Case of
pension
regulators
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Journalof Financial Regulation
andCompliance
Vol.24 No. 4, 2016
pp.383-401
©Emerald Group Publishing Limited
1358-1988
DOI 10.1108/JFRC-01-2016-0005
extends this work (Carpenter and Moss, 2014). We use the term regulatory capture as a
shorthand expression representing various degrees of regulatory inuence. “Regulatory
capture” refers to a situation in which the regulated industry has such inuence over the
regulator that it causes the regulator to act in the interests of the industry, rather than in
the interests of the general public.
Regulatory capture is sometimes characterized as arising because of the self-serving
actions of regulators. Regulatory capture can be in the nancial interests of regulators,
sometimes because of lucrative employment opportunities available to them after
leaving employment with the regulator. This paper analyzes regulatory capture in a
broader framework in which it arises from the prot-making motives of the regulated
industry, with no necessary gain occurring for the regulators, and sometimes with it
occurring despite the best efforts of the regulators to prevent it. In some cases,
regulatory capture occurs not because the regulator has been “captured” but because of
the inuence that the regulated industry exerts on the legislative authority that oversees
the regulator.
This paper examines how Ireland and the USA have allocated governmental
authority for private-sector employees’ pensions across government agencies, and the
effects of the different institutional approaches on regulatory capture. Ireland and the
USA have similar pension systems in that both include dened benet and dened
contribution plans. However, they have taken different approaches to regulators,
making their comparison one of interest. The comparison of the Irish and American
institutional structures of pension regulation identies two distinct regulatory regimes:
an entities-based approach and an issues-based approach.
The paper explores the hypothesis that the less complex allocation of regulatory
authority in Ireland concerning pensions makes it more susceptible to regulatory
capture. The choice of the institutional structure of regulation has important
implications for power relations, and thus for outcomes for industry and consumers.
While regulatory authority is primarily housed in one institution in Ireland, it is located
in multiple institutions, sometimes having overlapping authority, in the USA. In
addition, the USA, with its bicameral legislature, has a more complex allocation of
legislative authority, increasing the difculty of regulatory capture of the legislature.
After surveying the previous literature, the methodology used in the paper is
discussed. The paper then discusses how Ireland allocates regulatory authority for
pensions, followed by a section that discusses that issue for the USA. The following
section explores whether a simple allocation of regulatory authority is more prone to
regulatory capture than is a complex one. The nal section presents concluding
comments.
2. Previous literature
The rst academic to give regulatory capture sustained attention was the political
scientist Bernstein (1955). His most salient observation is that after an agency is formed
to regulate and provide policy direction for an industry it becomes vulnerable to capture
almost immediately. This effect occurs because the interests supporting the enactment
of the statute establishing the agency are diffuse, and they see their task as complete. On
the other hand, the industry being regulated is cohesive and seeks to protect its own
interests by making the agency subservient.
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