The February 26, 2014, Lab seminar, "Information and Regulatory Capture," was presented by Edmond J. Safra Lab Fellow, Laurence Tai. Having recently earned his JD and PhD in Public Policy at Harvard in May 2013, Tai's research is primarily concerned with agencies and their information. His dissertation research focused on the costs and benefits of information transparency in administrative rulemaking, with regulatory capture as a significant theme. During his Lab fellowship, Tai has been working on two projects: the first considers how challenges involved in informing the public about government activities through the Freedom of Information Act (FOIA), while the second models remedies for regulatory capture, which he defined as the process by which industry exerts its influence so that agencies' rulemaking decisions end up benefiting its interests rather than the public interest.
For the first project, Tai's initial intention was to examine the validity of the media's use of various types of documents uncovered from FOIA requests to determine to what extent, if any, such documents could be used to support claims of agency capture. The focus of his project has now broadened to consider the societal challenges of mediating and summating claims of wrongdoing to the public. To that end, much of the seminar presentation centered on an overview of current FOIA structure and operations, alternative methods of disclosure, and the benefits and drawbacks of disclosure. Before moving on to discuss the FOIA regime in greater detail, Tai fielded questions from participants of the Lab. One participant shared his personal experiences requesting pension fund documents at the state and local level. He went on to assert that lack of agency responsiveness, or an unwillingness to disclose documents is prima facie evidence of agency capture. Though Tai agreed that this was an interesting point, he largely resisted the idea, reasoning that mere resistance of disclosure alone does not necessarily prove wrongdoing on behalf of the agency.
Then discussion shifted to differing incentives agencies might have for resisting disclosure. Citing one ongoing Lab project, which has involved numerous FOIA requests to the EPA to obtain communications to members of Congress, one participant of the Lab argued that there are underlying incentives to resist disclosure for political reasons. It is for this reason, he suspects, that the EPA has been reluctant to turn over congressional correspondence. Though the conversation up to this point had only considered disclosure costs as a potential source for resistance, Tai agreed with the notion that withholding is at least sometimes politically motivated.
The presentation of his project continued with examples of FOIA use in media reports. First, Tai cited Bloomberg's efforts to obtain 29,000 pages of secret Fed documents and spreadsheets through FOIA requests. After culling through and analyzing the trove of secret documents from the period of August 2007 through April 2010, Bloomberg was able to compile a fresh narrative of the allegedly secret loans made to cash-strapped banks during the financial crisis. Tai offered this example to underscore the significant but ambiguous role FOIA plays in creating agency transparency. Second, Tai cited another Bloomberg News piece in which e-mails obtained by FOIA requests between then SEC-General Counsel and Senior Policy Director David Becker, attempt to show how the revolving door allows lawyers and lobbyists to draw on bonds they formed from government service to exert influence on behalf of their clients, but could also be explained by useful information provided by industry. Finally, Tai pointed to documents voluntarily released by agencies about Dodd-Frank meetings held between financial regulators and bank representatives which overwhelmingly outnumbering those held between regulators and the public. In each of these three cases, Tai explained, we see a tension in terms of should the data be made available so that people can check it, and also how the documents should be interpreted so that regulatory capture is not misdiagnosed.
The remainder of the presentation dealt with Tai's second project on remedies for regulatory capture. Though regulatory capture has been modeled before, Tai's project was distinctive in that capture was conceived as a shift of agency preferences through costly activities of industry. This mechanism differs from capture based on transfers from industry to regulators or on industry exploiting its information advantage over an agency. This conception of capture follows from recent research on "cultural capture," in which industry influences are mediated socially and psychologically, rather than through material gain for regulators.
Based on this idea of preference-based capture, Tai presented a formal model in which an industrial interest group could shift a regulator's preferences toward its own with two types of activities: rent-seeking, which serves no other purpose than besides preference-shifting, and information-gathering, which improves regulatory quality even as it influences the agent. The second activity does serve a public benefit, which means that eliminating all activities that foster capture is not necessarily optimal. The three remedies introduced were to limit rent-seeking, to move the agent's initial preferences further away from the industry's, and to make capture less effective in general (e.g., by requiring communications to be in writing or meetings to include parties with opposing interests). Of the three remedies, shifting the agent's initial preferences was shown in theory to yield the least adverse side effects on information-gathering. However, the practicality of this strategy was an open question, given the potentially limited availability of well-informed regulators that are relatively less friendly to industry.
-Summary composed by Joseph Hollow