Saturday, 7 December 2013

Regulatory Capture and Agency Inaction


There is an interesting piece over at the RegBlog on agency capture and review by America's Office of Information and Regulatory Affairs of agency inaction. Michael Livermore and Richard Revesz argue that agency failures to act may well result from agency capture and may be as damaging as inefficient agency action resulting from capture.

Accordingly, they argue that OIRA's mandate should extend to agency inaction:
Our most important recommendation is to eliminate a basic flaw that significantly limits OIRA’s capture-reducing potential: a near exclusive focus on agency action, without attention to agency inaction. Capture can have deleterious effects on the regulatory system by promoting unnecessary and inefficient rulemaking and also by impeding efficient regulation that serves the public interest.
Balanced anti-capture review needs to correct for the wide range of effects that outside pressure can have on agency decision making. Limiting review to agency action places an entrenched bias at the heart of OIRA review, sapping normative force from its anti-capture justification.

To remedy this problem, we propose a mechanism to review inaction through review of petitions for rulemakings that have been submitted to agencies, but which have been denied or have languished. This review would help OIRA identify important areas where agencies are failing to act, without remaking OIRA into a roving commission with the power to set agencies’ agendas. The petitioning process strikes a workable balance: debiasing OIRA’s role while providing agencies with continued discretion to set regulatory priorities.

But the focus on agency failure to adopt regulations is surely too narrow. Agency capture is also one possible reason for the retention of regulations that are long past their sell-by date though beneficial to some sectoral interests. Retaining them might benefit groups of bureaucrats, enterprises or associations but not the public at large. OIRA review (and the various fixed or ad hoc arrangements in other jurisdictions that resemble it) should also concern itself with inaction once regulations have been adopted.

Tyler Cowen made this point (albeit without reference to agency capture) in a recent New York Times op-ed:

Many regulations, when initially presented, can sound desirable. The problem is that, taken in their entirety, excess rules divert attention from pressing issues like the need for innovation and new jobs.

Michael Mandel, an economist at the Progressive Policy Institute, compares many regulations to “pebbles in a stream.” Individually, they may not have a big impact. But if there are too many pebbles, a river’s flow can be thwarted. Similarly, too many regulations can limit business activity. When the number of rules mounts, it can become hard for a business to know whether it is operating within the law’s confines. The issue is all the more problematic when federal, state and local constraints all apply...

The Office of Information and Regulatory Affairs, within the White House, has advocated a retrospective review of unnecessary regulations. That’s a good idea, but the office has a full-time staff of only about 50, and its budget, adjusted for inflation, has declined since the early 1980s. The regulatory agencies outspend the office by a factor of about 7,000. The core problem is that the system is not geared for an efficiency-oriented regulatory review.
If Livermore and Revesz are right about review of agency inaction, the next logical step is to start the difficult process of pruning existing regulations, a task that is neither easy nor cheap.

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