Agency rulemaking, political influences, regulation, and industry compliance

Abstract

This article empirically examines the impact of congressional oversight and agency rulemaking on firm compliance behavior in FDA-regulated industries. Congressional oversight hearings provide signals to firms about future changes in regulatory enforcement strategies. Agency rulemaking influences firms' incentives to comply with regulation because firms must invest significant resources to keep up with changing agency policy. This analysis uses three-stage least squares to simultaneously estimate both the numbers of FDA inspections and industry violators between 1972 and 1994. Results show that congressional oversight deters industry noncompliance. The effect of agency rulemaking on noncompliance differs between industries. For instance, an increasing stock of human drug rules has raised compliance among drug firms because newer more, cost-effective rules have replaced older, more costly rules. In contrast, the increasing stock of medical device rules has reduced industry compliance among device firms because these rules have increased the complexity and the scope of regulation.

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