Policy Development Monopolies: Adverse Consequences and Institutional Responses

Policy Development Monopolies: Adverse Consequences and Institutional Responses

By Alexander V. Hirsch, Ken Shotts
May 25,2017Working Paper No. 3137

We analyze a model of policymaking in which only one actor, e.g., a bureaucratic agency or a well-funded interest group, has the capacity to develop high-quality policy proposals. By virtue of her skills, this actor has an effective monopoly on policy development and thus can craft proposals that are good for herself but provide few benefits to decisionmakers who enact policies. We then examine institutional responses that decisionmakers can use to induce a policy-development monopolist to craft more-appealing proposals: (i) establishing in-house policy development capacity, (ii) delegating authority to an agent who counterbalances the monopolist’s preferences, and (iii) fostering competition by policy developers with different preferences. We apply our model to a diverse set of contexts, including lobbying in term-limited state legislatures, regulation of banking and financial services, and administrative procedures for rulemaking in U.S. federal bureaucracies.