Whether regulating mutual funds or chemical manufacters, government’s policy decisions depend on information possessed by industry. Yet it is not in any industry’s interests to share information that will lead to costly regulations. So how do goverment regulators secure needed information from industry? Since information disclosed by any firm cannot be retrieved and can be used to regulate the entire sector, indutry faces a collective action problem in maintaining silence. While collective silence is easy to mantain if a firms’ interests are aligned, individual firms’ payoffs for diclosure can vary due to heterogeneous effects of regulation and differing expectations about the regulator’s expected actions with or without any given information. This leads to regulators’ first strategy: exploit asymmetries in firms’ interesnts in disclosure. Since total transparency would be a detract from government’s ability to secure valuable information, administrative law needs to balance between the competing needs of transparency to prevent abuse and opacity to facilitate information exchange.
Seeking Truth for Power: Informational Strategy and Regulatory Policy Making by Cary Coglianese, Richard Zeckhauser, Edward (Ted) Parson :: SSRN