Excessive industry influence is a potential problem in many regulatory domains. This influence can operate through diverse mechanisms, including implicit promises of future employment or political contributions, cultural and behavioral forces, and industry production of excessive amounts of information. In the wake of the global financial crisis, Gulf oil spill, and West Virginia mine disaster, academic interest in understanding and limiting these forms of regulatory capture has skyrocketed.
One of the most exciting recent projects on this topic is an edited volume, Preventing Capture: Special Interest Influence in Regulation, and How to Limit It, which is forthcoming in 2012. The diverse backgrounds and preeminence of the editors -- Daniel Carpenter, Steven Croley, and David Moss -- have allowed them to assemble an interdisciplinary group of leading scholars to “definitively revise and recast our understanding of capture and contribute to increasing the accuracy and practical impact of scholarly work on the issue.”
I was fortunate enough to be invited to join this group, largely because of the paucity of academics who study insurance regulation – one of the largest and most important domains of state regulation (and one in which allegations of capture are common). My chapter examines programs that attempt to offset or temper industry influence by affirmatively promoting the influence of consumer groups or representatives. These programs come in two basic varieties. First, Texas maintains an independent government entity known as the Office of Public Insurance Counsel (OPIC), which is tasked with representing the public interest in various regulatory matters. Such “proxy advocacy” is also common in utilities regulation. Second, California and the National Association of Insurance Commissioners (NAIC) operate programs that amplify the voice of public interest groups who would ordinarily be under-represented in the regulatory fray. For the last five years, I have served as a consumer representative in the NAIC’s program. These programs fit the general model of “tripartism,” whereby independent public interest groups are endowed with formal authority to participate in regulatory processes.
Based on these short case studies, the chapter offers guidance about when these types of programs are most likely to be effective, at least in the context of insurance regulation and similar regulatory settings, such as state securities and banking regulation. First, it suggests that proxy advocates such as OPIC are most effective when there exists a clear consumer position, new information is likely to impact regulatory results, and the involvement of non-industry stakeholders is limited. The Chapter argues that these conditions are met in a broader set of circumstances than the current deployment of proxy advocacy might suggest. At least in insurance regulation, there is often a coherent set of “consumer positions” that can be identified based on historical trends. Although these positions may not always (or perhaps even often) represent optimal regulatory policy, they will tend to be under-represented in regulatory processes that do not substantially involve non-industry stakeholders. In non-salient, complex, and state-based fields like insurance regulation, non-industry stakeholder engagement in regulation is often quite rare.
At the same time, tripartism enjoys important comparative advantages to proxy advocacy in certain settings. For instance, unlike proxy advocates, tripartite schemes do not require the existence of a clear-cut consumer perspective. Perhaps even more importantly, in contrast to proxy advocacy, tripartism may be capable of influencing results even if non-industry stakeholders already present “consumer positions” to regulators. This is because empowered public interest groups do not simply provide regulators with additional information and perspective; they marry that information and perspective with the threat of political pressure through the use of media and public outreach. A key shortcoming of tripartism, however, is that it requires a robust network of public interest groups with broad-ranging expertise and interests. As noted above, such a network does not always exist, resulting in tripartism allowing a single public interest group to gain excessive influence.
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