Regulatory System Design: Some Solutions to the Delegation Problem

Abstract: We present solutions to each of the major delegation problems that arise when elected officials delegate rulemaking authority to government agencies. These problems include principal-agent issues, monopoly provision, information asymmetry, and tragedy of the commons. Rather than presenting our solutions to these problems as incremental changes to an existing system, we discuss how a regulatory system built from scratch might avoid these problems. Following our problem-specific solutions, we present a detailed structure of a regulatory process that alleviates many delegation problems simultaneously. This structure better aligns the incentives of regulators with those of legislators and with the well-being of the public. We intend the solutions and process structure presented here not to serve as a collection of proposed changes but as guideposts for those hoping to make any part of the regulatory system better attuned to the needs of the populace.

JEL codes: K23, L51, Q58

Keywords: benefit-cost analysis, principal-agent, RegData, regulation, regulatory accumulation, regulatory budget, regulatory impact analysis, regulatory reform

Jerry Ellig (1962-2021) was a dedicated and accomplished scholar dedicated to making a difference in people’s lives. Jerry believed in the need for a “bridge” connecting the academy and the policy world and he traversed the bridge many times – from university to government and back again throughout his career. A mentor to many, he is remembered as “relentlessly cheerful” and “generous in advice and time.” 

This special study is a summary of many of Jerry’s works and proposed solutions and is meant to carry on his legacy as a great bridge builder. 

If you would like to learn more about Jerry Ellig, you can read his full bio here.