Administrative State

Kevin Lewis

November 09, 2020

Cary Coglianese, Gabriel Scheffler & Daniel Walters
Stanford Law Review, forthcoming

At the center of contemporary debates over public law lies administrative agencies’ discretion to impose rules. Yet, for every one of these rules, there are also unrules nearby. Often overlooked and sometimes barely visible, unrules are the decisions that agencies make to lift or limit the scope of a regulatory restriction, for instance through waivers, exemptions, and exceptions. In some cases, unrules enable regulators to reduce burdens on regulated entities or to conserve valuable government resources in ways that make law more efficient. However, too much discretion to create unrules can facilitate undue business influence over the law, weaken regulatory schemes, and even undermine the rule of law. In this paper, we conduct the first systematic empirical investigation of the hidden world of unrules. Using a computational linguistic approach to identify unrules across the Federal Register, the Code of Federal Regulations, and the United States Code, we show that unrules are an integral and substantial feature of the federal regulatory system. Our analysis shows that, by several conservative measures, there exists one obligation-alleviating word for approximately every five to six obligation-imposing words in federal law. We also show that unrules are surprisingly unrestrained by administrative law. In stark contrast to administrative law’s treatment of obligation-imposing rules, regulators wield substantial discretion in deploying unrules to alleviate regulatory obligations. As a result, a major form of agency power remains hidden from view and relatively unencumbered by law. Recognizing the central role that unrules play in our regulatory system reveals the need to reorient administrative law and incorporate unrules more explicitly into its assumptions, doctrines, and procedures.

Where Self-Interest Trumps Ideology: Liberal Homeowners and Local Opposition to Housing Development
Clayton Nall & William Marble
Journal of Politics, forthcoming


How much does self-interest drive Americans’ policy attitudes? Survey research typically finds that self-interest’s role is minimal. Such conclusions are typically reached by examining attitudes toward federal policies that present diffuse costs and low stakes. We consider a starker test-case of self-interest: controversies surrounding development of dense and affordable housing in Americans’ communities. Liberal homeowners, especially, must cope with dissonance between their egalitarian ideology and a desire to protect their home values and quality of life. They often embrace liberal housing goals and redistributive housing policies, but join conservatives in opposing dense housing in their own communities. Two survey experiments show that liberal homeowners are cross-pressured, and barely more likely than conservative homeowners to support dense housing development. Messages appealing to homeowners’ self-interest reduce support further, while countervailing appeals about housing’s benefits to low- and middle-income families barely offset the negative effect. We discuss implications for the politics of equality of opportunity in state and local politics.

Some Facts about Dominant Firms
Germán Gutiérrez & Thomas Philippon
NBER Working Paper, October 2020


We measure the evolution of dominant firms in the U.S. economy since 1960, and globally since 1990. Contrary to common wisdom, dominant firms have not become larger, have not become more productive, and their contribution to aggregate productivity growth has fallen by more than one third since 2000.

How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree
Martin Watzinger et al.
American Economic Journal: Economic Policy, November 2020, Pages 328-359


Is compulsory licensing an effective antitrust remedy to increase innovation? To answer this question, we analyze the 1956 consent decree that settled an antitrust lawsuit against Bell, a vertically integrated monopolist charged with foreclosing the telecommunications equipment market. Bell was forced to license all its existing patents royalty-free, including those not related to telecommunications. We identify the effect of the consent decree on follow-on innovations building on Bell patents by using exactly matched non-Bell patents as control group. We show that the consent decree led to a lasting increase in innovation but only in markets outside the telecommunications sector.

Can Behavioral Interventions Be Too Salient? Evidence From Traffic Safety Messages
Jonathan Hall & Joshua Madsen
University of Toronto Working Paper, September 2020


Behavioral interventions are a popular tool for encouraging socially desirable behavior and are expressly designed to seize people's attention. However, little consideration has been given to the costs of seizing attention. We estimate these costs in the context of an increasingly common highway traffic safety campaign that displays roadside fatality counts on highway dynamic message signs (DMSs). We exploit detailed data on DMS and crash locations, DMS log files, and a unique setting in Texas where fatality messages are shown only during one week each month. We find that this behavioral intervention significantly increases the number of traffic crashes. The increase in crashes is immediate, dissipates over longer distances, and increases with the displayed fatality count. Furthermore, drivers do not habituate to these messages, even after five years, and the effects do not persist beyond the treated weeks. Crashes increase statewide during treated weeks, inconsistent with any benefits. Our results show that behavioral interventions, designed to be salient, can crowd out more important considerations, causing interventions to backfire with costly consequences.

The Effect of Home-Sharing on House Prices and Rents: Evidence from Airbnb
Kyle Barron, Edward Kung & Davide Proserpio
Marketing Science, forthcoming


We assess the impact of home-sharing on residential house prices and rents. Using a data set of Airbnb listings from the entire United States and an instrumental variables estimation strategy, we show that Airbnb has a positive impact on house prices and rents. This effect is stronger in zip codes with a lower share of owner-occupiers, consistent with non-owner-occupiers being more likely to reallocate their homes from the long- to the short-term rental market. At the median owner-occupancy rate zip code, we find that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices. Considering the median annual Airbnb growth in each zip code, these results translate to an annual increase of $9 in monthly rent and $1,800 in house prices for the median zip code in our data, which accounts for about one-fifth of actual rent growth and about one-seventh of actual price growth. Finally, we formally test whether the Airbnb effect is due to the reallocation of the housing supply. Consistent with this hypothesis, we find that although the total supply of housing is not affected by the entry of Airbnb, Airbnb listings increase the supply of short-term rental units and decrease the supply of long-term rental units.

Industry Concentration and Information Technology
James Bessen
Journal of Law and Economics, August 2020, Pages 531-555


Industry concentration has been rising in the United States since 1980. Does this signal declining competition and the need for a new antitrust policy? Or are other factors causing concentration to increase? This paper explores the role of proprietary information technology (IT), which could increase the productivity of top firms relative to others and raise their market share. Instrumental variable estimates find a strong link between proprietary IT and rising industry concentration, accounting for most of its growth. Moreover, the top four firms in each industry benefit disproportionately. Large investments in proprietary software -- $250 billion per year -- appear to significantly impact industry structure.

The Value of Social Status
Alexander Butler et al.
NBER Working Paper, October 2020


We quantify the value of social status using market prices for Delaware license plates. Delaware plates are numbered sequentially, are private property, and can be legally bequeathed or traded in a secondary market. License plates offer no direct economic benefit other than authorizing the operation of a motor vehicle. But they appear to be a source of social status. Not only do market prices suggest a preference for lower plate numbers, but there exist extreme price jumps that indicate that exclusive clubs exist whereby the number of digits on the plate convey implicit membership. The aggregate value of this market indicates that people purchase status as a significant portion of their consumption bundle. Finally, social status as an asset appears to be uncorrelated with aggregate economic and market conditions.

Collective action, opportunism, and class agency under ineffective state enforcement: Marx on English Factory Laws
Korkut Alp Ertürk
Journal of Institutional Economics, forthcoming


The paper focuses on a previously unexamined aspect of Marx's discussion on the 19th century English Factory Acts, and highlights its broader relevance for contemporary discussions about the role of institutions in a market economy. The capitalists' enlightened self-interest was to better husband their work force by limiting the workday and curtailing child labor, but market competition put them in a Prisoner's Dilemma creating an opportunism hazard. The ‘Factory Acts’ addressed the problem, but the state lacked the capacity to enforce them effectively. Marx held that the organized power of workers played an essential role in how the Factory Laws could gain traction at a time when state enforcement was unreliable. Organized labor's threats of sanction were credible enough to lower the expected benefit of non-compliance, enabling capitalists to commit to acting in their long-term, collective self-interest.

Data Sharing and Market Power with Two-Sided Platforms
Rishabh Kirpalani & Thomas Philippon
NBER Working Paper, October 2020


We study an economy in which consumers and merchants (sellers) interact on a two-sided platform. Consumers can share data about their tastes for different varieties of a single good with the platform which in turn sells this data to merchants. Data sharing increases gains from trade by improving match quality but gives more market power to the platform relative to the merchants which can reduce entry and consequently consumer welfare. This leads to an externality not internalized by consumers thus leading to more data sharing than is efficient. We highlight two reasons why more precise information increases the market power of the platform. The first is a copycat (private label) externality that increases the outside option for the platform of selling the good directly to consumers. The second is a consumer access externality that reduces the outside option of the merchants when information gets more precise, as more buyers are able to find their desired variety on the platform. Our model explains the qualitative differences between traditional retail platforms (physical stores) and digital online platforms and why the latter are more likely to require regulatory interventions that the former.

Are Regulators Effective at Unraveling Accounting Manipulation? Evidence from Public Utility Commissions
Jivas Chakravarthy, Katie McDermott & Roger White
Management Science, forthcoming


Prior research proposes that a monopolist with private information inflates its reported costs under rate regulation to extract an informational rent. Using a sample of U.S. electric utilities from 1990–2011, we first confirm an unexpected increase in operating expense during rate review periods, then decompose operating expense into its cash and accrual components, and find the cash component accounts for 89% of this increase. The observed pattern is consistent with some combination of real activities management and utility managers misrepresenting transitory expense shocks as permanent. We then focus on identifying regulators’ effectiveness at unraveling this manipulation and minimizing the rent. We estimate that, on average, regulators allow 17¢ out of every dollar of abnormal cash expense to be recovered in future annual revenue, a statistically significant amount. Next, we study the effects of regulators’ ability (proxied by experience) and motivation (proxied by whether they were elected) to unravel accounting manipulation. We find that whereas inexperienced and politically appointed regulators allow a significant portion of abnormal cash expense to be recovered (41¢ and 24¢ out of every dollar, respectively), experienced and elected regulators do not (although the difference between appointed and elected regulators is not statistically significant). Our findings suggest that regulators differ in their ability to identify manipulation -- with experience enhancing this ability -- and that, on average, state regulators effectively unravel most of the effect of accounting manipulation.

Information presentation and firm response: Evidence from fertility clinics
Bingxiao Wu
Economics Letters, forthcoming


Behavioral economists have documented the existence of information-processing biases in consumer behavior, yet relatively few studies have examined firms’ responses to information presentation in public reporting. This paper investigates how fertility clinics in the U.S. respond to an exogenous change in the reporting format of Assisted Reproductive Technology (ART) Success Rates reports, which disclose clinic-specific quality information to the public. We find that a new format that highlights the “singleton-birth rate” quality dimension is associated with a lower number of embryos transferred by fertility clinics, and this effect is stronger among clinics facing local competition. This finding implies that properly presenting quality information in public reporting is important to ensure quality improvement.

Trade Associations: Why Not Cartels?
David Levine, Andrea Mattozzi & Salvatore Modica
International Economic Review, forthcoming


The relevance of special interests lobbying in modern democracies can hardly be questioned. But if large trade associations can overcome the free riding problem and form effective lobbies, why do they not also threaten market competition by forming equally effective cartels? We argue that the key to understanding the difference lies in supply elasticity. The group discipline which works in the case of lobbying can be effective in sustaining a cartel only if increasing output is sufficiently costly ‐- otherwise the incentive to deviate is too great. The theory helps organizing a number of stylized facts within a common framework.


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