Carnegie Papers on Political Economy, Volume 2: Proceedings of the Carnegie Conference on Political...

Legislative Choice of Regulatory Forms: A Comment on FiorinaAuthor(s): Albert NicholsSource: Public Choice, Vol. 39, No. 1, Carnegie Papers on Political Economy, Volume 2:Proceedings of the Carnegie Conference on Political Economy (1982), pp. 67-71Published by: SpringerStable URL: http://www.jstor.org/stable/30023614 .

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67

LEGISLATIVE CHOICE OF REGULATORY FORMS

A Comment on Fiorina

Albert Nichols

Harvard University

Fiorina's paper combines history, traditional political science, and formal models

with mixed success. He presents an array of explanations of why Congress often chooses

to regulate through administrative agencies with vague mandates rather than by enacting

more precise legislation to be enforced in the courts. Many of the individual models and

explanations are interesting and offer useful insights, but the paper would benefit from a

greater effort to integrate and evaluate the alternatives presented. In part, Fiorina has

"shifted the responsibility" to the reader, possibly in the hope that there will be less slippage

for the propositions with which the reader agrees than for those he finds less compelling.

My comments focus first on the specific models presented by Fiorina and then on ways in

which portions of his analysis might apply to other regulatory issues, in particular the choice

between "command and control" and incentives.

Uncertainty Models

My most serious reservations concern the uncertainty models. Within the context

of the model he formulates, I question Fiorina's assumption that legislators have bell-shaped

utility functions about their optimal levels of regulation. That assumption, that a legislator is risk averse in the neighborhood of his optimum but risk seeking far away from it, is the

basis for the conjecture that legislators who believe that the proposed level of regulation is

far too low or far too high will prefer a less certain mode of implementation (the agency

approach). Fiorina offers neither an intuitive rationale nor empirical evidence for why

legislators should have such curious utility functions. Note that the assumption of bell-

shaped utility functions is also inconsistent with the earlier models, in which Fiorina makes

the conventional assumption that marginal costs rise and marginal benefits fall as the level of

regulation increases. Under that assumption, the net benefit function for any given legislator is strictly convex; as one moves farther away from his optimum, net benefits fall at an

increasing rate. Legislators then are risk averse over the whole range, and all legislators

prefer any given level of regulation to a lottery with the same expected level.

Public Choice 39: 6 7- 71 (1982) 0048-5829/82/0391-006 7 $00. 75. @ 1982 Martinus Nijhoff Publishers, The Hague. Printed in the Netherlands.



68

A more fundamental difficulty with the uncertainty models is that they deal only

with uncertainty about the level of regulation and treat (implicitly) the costs and benefits

as certain. In most cases, however, the costs and benefits associated with any given level of

regulation are highly uncertain. Thus, precise legislation (e.g., automobile emissions shall

be reduced 90 percent) may leave little uncertainty about the level of regulation to be

achieved but tremendous uncertainty about what will be the net benefits. In contrast, a

more flexible approach that gives regulators greater discretion to respond to new infor-

mation, while making the level of regulation per se less certain, may both reduce uncertainty

about the level of net benefits and increase its expected value. If costs turn out to be much

higher than expected, for example, the agency can regulate less stringently than Congress

originally anticipated. This formulation, a modified version of the "good government"

model, predicts a general preference for delegation to agencies, particularly when the costs

and benefits are highly uncertain but subject to at least partial resolution over time.

Legislator-benefit Models

The shift-responsibility model, when combined with Fiorina's notion of legislative

rent-seeking through constituent services, provides a more compelling explanation of

Congress' preference for vague, agency-implemented regulation. Fiorina argues that when

legislators delegate regulatory authority to administrative agencies, they lose some of the

credit for the benefits derived but succeed in deflecting an even greater share of the costs.

Thus, the SR model suggests, legislators will prefer administrative rather than legal forms,

unless the benefits are substantially greater than the costs.

I suspect, however, that the key factor facilitating credit-claiming, and blame-

shifting is not the choice of administrative implementation; it is, rather, the use of imprecise

legislative language. Imprecise language offers many political advantages, not the least of

which is the leeway it gives Congressmen in interpreting the meaning of the act to their

constituents. A laundry list of factors to be considered in regulating, with no clear direction

as to how conflicting factors should be balanced, offers much room for selective inter-

pretation, depending on the interests of the constituents of individual legislators. Moreover,

after the act is implemented, vague language provides a shield for legislators; if the regu-

lations are unfavorable to the legislator's constituents, he can blame the agency, or court,

involved for misinterpreting Congress' intent. If the impact is favorable, Congressmen can

claim most of the credit, arguing that the agency or court is merely carrying out the Con-

gressional will.

The agency-legal distinction is relevant to the extent that it is easier to blame agen-

cies than courts for "misinterpretation" of vague legislation. Widespread, vehement Con-

gressional criticism of the courts on a range of issues, from school busing to abortion, sug-



69

gests that the courts are far from immune, however. Legislative rent-seeking bolsters the case for implementing vague legislation through agencies rather than the legal systems. As

Fiorina points out, vague regulatory statutes provide many opportunities for legislators to intervene with agencies on behalf of their constituents. Such opportunities are far less

extensive when the courts are the main arena, or when agencies have clear criteria that leave little room for case-by-case exceptions.

Other Applications

Fiorina's SR model also generates useful insights into a variety of other issues,

including the rapid growth of federal regulation over the past decade or so. Regulation itself may be viewed as a method of shifting responsibility. When Congress imposes new

regulations on business or lower levels of government, it reaps the credit for promoting some

desirable goal, such as protecting workers, cleaning up the environment, or providing access

to transportation for the handicapped. It avoids direct responsibility for most of the costs,

however, because few of them show up in the federal budget as they would if Congress

attempted to achieve the same goals through direct appropriations. Instead, firms must

bear the costs or pass them on to consumers in the form of higher prices. Where the regulation is intergovernmental, local officials must take the heat for raising taxes or cutting other programs. It is hard to imagine a better way of shifting responsibility, at least in the

short run, although growing recognition of the costs of regulation and what Mayor Koch

(1980) of New York calls the "mandate millstone" may limit the future viability of this

strategy. (Proposition 2-1/2, for example, the tax-limitation initiative passed by Massa-

chusetts voters in 1980, includes a provision forbidding the state legislature from imposing new programs on local governments unless it appropriates funds to pay for them.)

My final comment concerns the applicability of Fiorina's analysis to the problem he started with but chose not to address [p. 4, second paragraph] : "Under what conditions do legislatures opt for command and control rather than incentives?" Although the answer to this question is a complicated one, with many contributing factors, the SR model and

legislative rent-seeking both strike me as relevant.

As Fiorina suggests early in his paper, unless one adopts a very narrow definition of

regulation, in which case the "stylized fact" is a tautology, it is not apparent that Congress eschews incentives. The tax code is full of special provisions to encourage certain kinds of

behavior (such as energy conservation, charitable giving, and installation of pollution- control equipment) and, in addition, direct subsidies are given for many activities (such as

municipal sewage treatment and public transit). It is far harder, however, to cite instances

where "negative" incentives (such as emission charges) are used to influence behavior.

The SR model offers at least a partial explanation of this failure to use negative



70

incentives. Under the command and control approach. Congress reaps the credit for taking a clear stand against some "evil," but, as discussed above, the costs are likely to be some-

what hazy. Similarly, with a "positive" incentive, the benefits are clear to those who reap

them, while the costs, particularly if the incentive is implemented through the tax system,

are much less clear or spread so widely that most individuals will fail to notice them.

In contrast, negative incentives are likely to sharpen the perceived costs and make it

more difficult to claim credit for the benefits. Under an emission charge, for example, firms

probably would make substantial payments to the government, payments that economists

would treat as transfers but that firms would regard as real costs. On the benefit side, the

imposition of a charge is likely to lack the dramatic impact and moral overtones of, say, the Clean Air Act with its directives that ambient standards shall be set to protect public

health.

Emission charges and other economic incentives probably also would offer fewer

opportunities for Congressmen to intervene on behalf of individual constituents; the major

argument in favor of incentives is that they automatically take account of firm-to-firm

variations in costs, thus eliminating the need for case-by-case exceptions and adjustments.

As one of the economists to whom Fiorina refers, whose heart is warmed by "thinking of

possible replacements for command and control regulation," [p. 5, first paragraph], I hope

that future analyses will be able to suggest ways in which these and other obstacles to the

implementation of incentive schemes can be overcome.



71

References

Koch, E.I.

(1980) The Mandate Millstone, Public Interest, 61: 42-57.



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