BUREAUCRATIC DECISION COSTS AND ENDOGENOUS AGENCY EXPERTISE Matthew

This paper analyzes the impact of bureaucratic decision costs on agency expertise. The analysis shows that the effect of the cost associated with adopting a new regulation (the “enactment cost”) on agency expertise depends on what the agency would do if it remains uninformed. If an uninformed agency would regulate, increasing enactment costs increases agency expertise; if an uninformed agency would retain the status quo, increasing enactment costs decreases agency expertise. These results may influence the behavior of an uninformed overseer, such as a court or legislature, that can manipulate the agency’s enactment costs. Such an overseer must balance its interest in influencing agency policy preferences against its interest in increasing agency expertise. The paper explores the implications of these results for various topics in institutional design, including judicial and executive review of regulations, structure-and-process theories of congressional oversight, national security, criminal procedure, and constitutional law. JEL classification: D73, D83, K23, K32. ∗I am grateful to Jim Alt, Ethan Bueno de Mesquita, Richard Fallon, Jeff Frieden, Jack Goldsmith, Sunshine Hillygus, Howell Jackson, Anne Joseph, Louis Kaplow, Adriaan Lanni, Daryl Levinson, Yair Listokin, John Manning, Lisa Martin, Martha Minow, Maggie Penn, Rick Pildes, Eric Posner, Matthew Price, Mark Ramseyer, Fred Schauer, Ken Shepsle, and Kathy Spier for helpful comments on earlier drafts. †Harvard University. The delegation of substantial policymaking authority to administrative agencies is often both explained and justified by the belief that agencies have more accurate information about the actual impacts of different policy choices. Consider, for example, the decision whether to ban a toxic substance like asbestos. A common argument for delegating this decision to the Environmental Protection Agency (EPA), rather than leaving the decision to Congress, is that the EPA has greater expertise about the likely effects of the proposed ban, including more accurate estimates of projected health benefits and economic costs. At the same time, delegation entails the risk that agencies will exploit their policy-making discretion to pursue goals that diverge from those of the electorate and its representatives. The EPA, for example, might be more zealous than the median member of Congress, leading the agency to ban asbestos under circumstances in which Congress, if fully informed, would not. The informational asymmetry that justifies the delegation in the first place makes it difficult for Congress, courts, or other overseers to monitor the agency. A rich literature in political science, economics, and law considers institutional mechanisms that less-informed overseers, such as politicians and courts, may employ to induce better-informed agencies to make decisions that more closely track the overseer’s policy preferences. This literature, however, typically assumes that agency expertise is exogenous—a given characteristic of the agency that is independent of the scope of the delegation, other aspects of the institutional environment, and the agency’s own choices. That assumption, although often a useful simplification, is problematic. Although we may say that the EPA has expertise regarding environmental regulation as a general matter, the EPA may only be able to learn about the likely effects of a specific proposal, such as the asbestos ban, by investing scarce resources (e.g., staff, money, time) into data collection, analysis, consultation with outside parties, and similar activities. In turn, the agency’s decisions regarding how much effort to devote to such investigative activities may depend on the institutional structures and incentives created by Congress, courts, and other overseers. Agency expertise, on this view, is endogenous.