Magat, Krupnick, and Harrington's Rules in the Making: A Statistical Analysis of Regulatory Agency Behavior

Abstract

* Economic research on regulatory policy has attacked three distinct but logically connected topics. First came literature on market failures that detailed how markets might perform with something less than perfect efficiency, and how-in principle, at least-government policies might improve upon this performance. While passing through fads and cycles, this literature is alive and well, latest manifestations being various game-theoretic models of dynamic competition and regulation. The second research focus, which became significant about 1960, was on empirical studies of actual performance of regulatory policies. Post-War developments in government data collection, improvements in statistical methods, and availability of highspeed computers gave economists powerful new means for examining whether theoretical justifications for regulatory interventions that were laid out in first literature bore some relationship to what regulators actually did and how regulated markets actually worked. Most findings were negative (Joskow and Rose, forthcoming). We are now riding crest of third wave, which is research directed at reconciling these two literatures. The empirical research of 1960s and 1970s, finding regulatory performance to be something short of efficiency-enhancing, gave rise to research on forces that cause regulatory policy to be pursued as it is. Rules in Making is among best efforts undertaken in this third area, and deserves to be not only read but seriously studied by anyone who works in field. In writing a book on regulation, a common strategic ploy is to cloak a focused, specialized study of a very narrow policy question in garb of generalization. A multiply-burned victim of ploy, therefore, might easily be put off by very first page of Preface of Rules, wherein a book with a very sweeping title is revealed really to be about the industrial effluent standards set by Environmental Protection Agency (EPA) pursuant to Federal Water Pollution Control Amendments of 1972. In this case, however, title is justified. The book is a serious attempt to determine whether theoretical results about regulatory policymaking that emerged in research literature since early 1970s can, in fact, explain decisions of a regulatory agency. Only in places, where understanding requires some institutional and technical detail, is a reader who is not a water pollution devotee in serious danger of an attack of narcolepsy. The key to book is that it substantially advances research on how to operationalize many of concepts in economic theory of regulatory politics so that they can be given a serious empirical test.