Delegation and Administrative Lobbying in Rule-Making

We explore the determinants of market regulation with an analysis of the policy-making process in which the legislature delegates authority to an executive agency and special interests can lobby the executive agency. We discuss how the mere threat of administrative lobbying by the industry may be sufficient to induce the agency to set policies preferred by the industry. Our analysis also shows that policy conflict, the difference between the legislature's preferred policy and the agency's implemented policy, is increasing in the agency's vulnerability to lobbying but decreasing in the interest group's lobbying cost when the legislature prefers more extreme policies. Administrative lobbying either amplifies or mitigates the conflict between the legislature and the agency. Relatedly, our analysis shows that the “ally principle” does not hold and the legislature prefers an agency that is slightly more biased against the industry. The legislature delegates greater discretion to the agency when policy uncertainty is higher, when policy conflict between the legislature and the agency is a lower, and when administrative lobbying mitigates the policy conflict between legislature and agency