Unification versus Separation of Regulatory Institutions

Unification versus Separation of Regulatory Institutions

February 15,2017Working Paper No. 3550

Why might a country choose to aggregate regulatory information into a single government agency? And what might reverse this choice? We consider an oversight setting in which the institutional structure affects access to information. A regulator exerts effort towards a final outcome, but an oversight authority can intervene, which prevents the final outcome from being reached. We examine the dynamic choice between institutional unification and separation, where unification affords the oversight authority more information on the probable outcome. This creates a static trade-off in which more information lowers regulatory e§ort. Dynamically, institutional separation improves learning about the quality of regulatory agencies. This leads to switching between unification and separation in equilibrium