Delegation, capture and endogenous information structures
| Author | Perrin Lefebvre,David Martimort |
| DOI | http://doi.org/10.1177/09516298221107552 |
| Published date | 01 July 2022 |
| Date | 01 July 2022 |
| Subject Matter | Articles |
Delegation, capture and
endogenous information
structures
Perrin Lefebvre
DEFIPP, University of Namur
David Martimort
Paris School of Economics
Abstract
A substantial literature has been devoted to analyzing how legislators delegate regulatory power to
a more knowledgeable agency. Yet, much less attention has been paid to understand how this dele-
gation process is shaped by the environment in which this agency operates, and more specifically
by the actions of interest groups. We propose a model of regulatory capture to assess how the
distribution of information across interest groups and agencies impacts optimal delegation.
Whether an interest group and his agency share information or not determines the scope for cap-
ture and how much discretion should be left to this agency in response. Whether asymmetric
information reduces or increases discretion depends on the biases of the group and the agency
vis-à-vis Congress. Groups that are more aligned with Congress collect politically relevant infor-
mation, while more extreme groups remain poorly informed. The information structure that
endogenously emerges increases discretion under broad circumstances.
Keywords
Delegation, bureaucracy, capture, asymmetric Information, endogenous Information Structures
JEL codes: D82, D86, H10
1. Introduction
Policy-making most often takes place in highly complex and uncertain environments.
Macroeconomic and fiscal policies, economic, environmental and social regulations to
Corresponding author:
David Martimort, Paris School of Economics Paris, France.
Email: david.martimort@psemail.com
Article
Journal of Theoretical Politics
2022, Vol. 34(3) 357–414
© The Author(s) 2022
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/ 09516298221107552
journals.sagepub.com/home/jtp
quote a few offer a whole array of examples where the precise contours of optimal public
decisions are difficult to assess ex ante and their ex post consequences hard to anticipate at
the time of their design by acts of Law. Congress lacks the needed expertise to reach
sound policy-making. In response to this informational deficit that spans an ever-
expanding set of issues, Congress has chosen to delegate an increasing share of its
decision-making to better informed agencies, legislative committees and sub-committees
so as to inform and sometimes design better policies.
1
Following Gilligan and Krehbiel (1987, 1989, 1990), Epstein and O’Halloran (1994,
1999), Huber and Shipan (39), Bendor and Meirowitz (8), and Baron (6) among many
others, a large and insightful branch of formal political science has been devoted to
study this delegation process in contexts pervaded by asymmetric information. This lit-
erature has offered a number of key insights on what should be the optimal degree of dis-
cretion left to the bureaucracy, the scope and nature of communication processes between
bureaus, committees, regulatory agencies and Congress and the various institutional tools
that could help controlling bureaucratic drift if any.
Yet, the extant literature on delegation has also mostly focused on the two-tier simple hier-
archical relationships between Congress and the bureaucracy when taken in isolation, treating
the environment in which agencies evolve as immune to any outside influence. In particular, a
basic tenet of this approach remains to assume that the preferences of bureaucrats over policy
outcomes and the informational structure are exogenously given. In practice, non-elected offi-
cials do entertain close-knitted relationships with various interest groups.
2
Interest groups
devote much time and resources to influence government agencies and experts commissions.
3
This influence, in turn, shapes the agencies’preferences and thus their relationships with
Congress. As forcefully argued by Boehmke et al. (12), “Theories of legislative-bureaucratic
relations that ignore the role of interest groups and non-governmental actors generate pre-
dictions that, while potentially important and informative, are only ‘partial equilibrium’in
nature.”
4
Starting from this important observation, this paper aims at reinstalling the
Theory of Delegation into a more realistic realm. In this respect, we shall assume that agencies
are not only subject to the influence of Congress but also under the pressure of interest groups.
We thus study how regulatory capture by interest groups determines the delegation process.
Taking into account the influence of interest groups is all the more relevant that, at
least since Lowi (54) and Stigler (74), one of the main concerns raised against the
wide recourse to delegation is the threat it poses to the whole democratic process of
policy-making. Policy-making is viewed as being at the risk of escaping from the
hands of the elected public representatives to end up under the uncontrolled influence
of private interest groups. Even when taking this concern very seriously, McCubbins
et al. (1987, 1989) took an optimistic stance. Indeed, those authors argued that, with
an eye on the environment in which those agencies evolve, Congress is able to design
bureaucratic procedures to keep agencies on check. More precisely, Congress can
stack the desk so that agencies are monitored by groups which are de facto allied with
Congress. This seminal idea, although it stimulated a large body of works in the political
science literature, has so far received no formal modeling, at least to the best of our
knowledge. This paper aims at filling that gap.
In this respect, it should be first recognized that the ability of interest groups to channel
their influence on regulators depends on the information structure that surrounds the
358 Journal of Theoretical Politics 34(3)
bilateral relationship they entertain with those regulators. While some groups share most
policy relevant information with the relevant agency, and thus stand on equal feet, others
lack relevant information, making the relationship with their agency de facto quite asym-
metric. A first step of our analysis thus consists in investing the role and the possible con-
sequences that various degrees of informational asymmetries have on the way interest
groups might influence their regulatory agencies.
From there, a second step our analysis, much in the spirit of McCubbins et al. (1987,
1989), consists in observing that Congress might react to this influence of interest groups
by shaping the contours of the agency’s mandate and discretion. In more technical par-
lance, the degree of discretion left to regulatory agencies and the information structure
that surrounds their intervention should jointly be determined at equilibrium.
This approach is novel. While asymmetric information between the Congress and
agencies has long been recognized as the main justification for both the discretion left
to the bureaucracy and the limited scope of regulatory mandates, nothing is known on
how the distribution of information between interest groups and agencies impacts
those mandates and the afforded discretion.
5
Addressing this question helps us to under-
stand which informational structure interest groups would favor, depending on how their
preferences differ from those of Congress and the agency.
6
KEY INGREDIENTS OF THE MODEL. Congress (referred as it in the sequel) delegates regula-
tory rights to an informed agency (she) who is herself subject to the influence of an inter-
est group (he). The raison d’être of this delegation is that policy-making takes place in a
world of uncertainty.
7
Congress has to rely on the agency’s expertise who learns about a
policy-relevant state of nature so as to improve decision-making.
WHEN THE GROUP EXERTS NO INFLUENCE. Absent any influence by the interest group, the onl y
flip side of such a delegation is that the agency’s own preferences on which policy should be
pursued might differ from Congress’ideal point. The optimal mandate of the agency then
results from a well-known trade-off between rules and discretion.
8
Using the workhorse
model of the political science literature with quadratic preferences and a uni-dimensional
policy,
9
it is easy to see that, when the agency has a fixedupwardbiaswithrespectto
Congress, this mandate takes a simple form. Congress limits the agency’s discretion by
putting a cap on the possible policies the agency can choose from. The Ally Principle
10
then states that a more biased agency should be given less discretion.
The Ally Principle takes the perspective of Congress which acts as a principal in
designing regulatory mandates. Taking now the perspective of an interest group with
his own preferences somewhat modifies the results, and allows to identify two antagon-
istic effects. On the one hand, and for a given a level of discretion left to the agency, the
interest group would always benefit from an agency having an ideal point close to his
own. Indeed such an agency would pick decisions closer to the group’s preferences.
This Proximity Effect echoes the Ally Principle but now takes the group’s perspective.
On the other hand, when bringing the agency ideologically closer to the group also
means moving her away from Congress, Congress’response is to restrict the agency’s
discretion. As rules become more stringent, policies are less sensible to the state of
the world, which in fine hurts the group by reducing the agency’s discretion.
Lefebvre and Martimort 359
To continue reading
Request your trial