Revolving Doors and the Optimal Tolerance for Agency Collusion

Yeon‐Koo Che

196 citations0/0 files storedThe RAND Journal of Economics

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Regulation and Compliance Studies Merger and Competition Analysis Political Influence and Corporate Strategies

Abstract

In this article, I study how the presence of a revolving door and potential collusion between a regulator and a regulated firm affect the regulator's performance incentives. Contrary to the conventional wisdom, these seemingly undesirable features of the regulatory system may serve the interests of the government because (i) the regulator's efforts to enhance her industry qualifications may have a complementary effect on her regulatory performance and (ii) the regulator may become more aggressive in regulation so as to signal her industry qualifications to the firm. Collusion between a regulator and a firm also can be beneficial because a regulator may increase her monitoring effort in order to increase the chance of achieving a profitable side contract with the firm, and side-contracting may not always succeed.

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References

1987Signaling Games and Stable Equilibria 1986Price and Advertising Signals of Product Quality 1960Theory of Value: An Axiomatic Analysis of Economic Equilibrium 1986Hierarchies and Bureaucracies: On the Role of Collusion in Organizations 1986Using Cost Observation to Regulate Firms 1982Optimal coordination mechanisms in generalized principal–agent problems 1989The whistleblowers: exposing corruption in government and industry

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2015The revolving door and the SEC’s enforcement outcomes: Initial evidence from civil litigation 2016The Revolving Door for Financial Regulators 1995Behind the Revolving Door: A New View of Public Utility Regulation 2001Did amakudari undermine the effectiveness of regulator monitoring in Japan?2007Moonlighting: public service and private practice 2018Bank Lobbying: Regulatory Capture and Beyond 2011Credit Ratings Accuracy and Analyst Incentives

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