Fire-Alarm Signals and the Political Oversight of Regulatory Agencies

Hugo Hopenhayn and Susanne Lohmann

The Journal of Law, Economics, and Organization, 1996, vol. 12, issue 1, 196-213

Abstract: In political settings, delegation is often motivated by differences in expertise of costs of information gathering. Even if a political principal is less well informed than a regulatory agency, she can monitor whether the agency is acting in her best interests by taking informational cues from the media, interest groups, and constituents. In response to such "fire-alarm" signals, the principal may engage in political oversight activities. This article examines how asymmetric external information flows give rise to asymmetric political control rules that introduce bias and inconsistency into regulatory outcomes. Copyright 1996 by Oxford University Press.

Date: 1996
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