A Game Theoretic Approach to Regulatory Negotiation: A Framework for Empirical Analysis

Abstract

While regulatory agencies have been engaging in negotiation with regulated parties and other stakeholders for decades now, careful study of the implications of such negotiations have lagged. In particular, while several commentators have now staked out intellectual ground on the theoretical ramifications of regulatory negotiation, empirical analyses of regulatory negotiations have been lacking. This article analyzes the implications of regulatory "reinvention" as the latest in a series of administrative initiatives aimed at achieving better rulemaking and adjudication through negotiations. Reinvention is commonly understood to mean those programs that utilize negotiated agreements to implement regulatory requirements imposed by various environmental statutes. Controversy has visited reinvention, as several specific reinvention projects have raised questions regarding the legality of this administrative practice. Using an economic game-theoretic model, this article argues for a continuation of this practice, but under new statutory authorizations. Reinvention accomplishes much-needed flexibility in environmental statutes that have suffered from partisan Congressional gridlock, and by and large effectuate minor common sense amendments. Several instances of administrative failures, however, have jeopardized the legitimacy of this practice. Statutory authorizations, coupled with funding for enforcement and specific guidelines limiting agency discretion can bring legitimacy to regulatory negotiation. In addition, objective means of monitoring and evaluating the effectiveness of agencies in conducting negotiations are necessary. Towards this end, this article argues for empowerment of citizen groups and presents an empirical means of evaluating the fairness of regulatory negotiations.