Delegation, capture and endogenous information structures

Abstract

A substantial literature has been devoted to analyzing how legislators delegate regulatory power to a more knowledgeable agency. Yet, much less attention has been paid to understand how this delegation process is shaped by the environment in which this agency operates, and more specifically by the actions of interest groups. We propose a model of regulatory capture to assess how the distribution of information across interest groups and agencies impacts optimal delegation. Whether an interest group and his agency share information or not determines the scope for capture and how much discretion should be left to this agency in response. Whether asymmetric information reduces or increases discretion depends on the biases of the group and the agency vis-à-vis Congress. Groups that are more aligned with Congress collect politically relevant information, while more extreme groups remain poorly informed. The information structure that endogenously emerges increases discretion under broad circumstances.