Reputational threats and democratic responsiveness of regulatory agencies

Abstract

This chapter studies decision-making behaviour of independent regulatory agencies. Theoretical accounts of delegation to regulatory agencies emphasise that losses of political accountability of regulators are traded off against potential gains in regulatory efficiency. The theory of credible commitment suggests that independent (non-majoritarian) regulatory agencies are more effective in regulating markets than organisations under direct political control. However, independent regulatory agencies operate in a political context and need to demonstrate their benefit to a diverse set of stakeholders, including elected politicians. We are hence confronted with a ‘paradox of autonomisation’ according to which more autonomous public organisations have to take into consideration external demands to a greater degree than less autonomous organisations. Independent regulatory agencies will thus be subjected to high accountability demands. We use the analytical lens of bureaucratic reputation theory to analyse how different types of external demands affect regulatory agencies’ attention to stakeholders. The chapter argues that reputation-sensitive regulatory agencies will exhibit differential response patterns to negative public judgements, depending on the kind of negative judgements and the type of actor criticising the regulator. In this chapter we use data from a systematic media analysis of public judgements and regulators’ communicative response, with the financial regulator and the utility regulator (electricity, railways, etc.) in Germany as empirical cases. We find that regulatory agencies respond differently to negative public judgements yet are not more (or less) responsive to political actors’ criticism compared to other types of actors. This finding questions independent regulatory agencies’ democratic accountability, yet the chapter also suggests that public criticism and debate is only one channel, among many others, through which regulators are held democratically accountable.