A Theory of Interest Group Proposals in Agency Rulemaking

Abstract

This paper presents a positive economic model with which to describe interest groups' proposals in deliberative and accommodative agency rulemaking, particularly the type of rulemaking that requires the groups to discuss with each other and to propose their preferred policy implementation details before the agency finalizes the rulemaking on the basis of the proposals. Each interest group balances two factors in its proposal: (i) a greater rent that can be produced by making a proposal that is more advantageous to itself while being more aggressive toward its rival; and (ii) a greater political effort required to eliminate the rival's greater political resistance to that proposal. Then the agency establishes a policy on the basis of its judgment of the groups' proposals; its bias in the judgment is known to the interest groups a priori. The analysis suggests that an increase in the political effectiveness of either interest group makes both of them less polarized in their proposals, resulting in lower political costs associate with the proposal politics. An extension of this finding is that a consensus over a policy can be reached a priori by the two groups if both of them are sufficiently effective in politics. This generic model is then stylistically applied to the recent shareholder incentive rulemaking for California energy efficiency programs. We suggest that proposals made by interest groups in agency rulemaking can be an appropriate medium to develop a broader theory of policy decision making.

Keywords: Interest Group Politics, Agency Rulemaking, Request for Proposals, Political Effectiveness

JEL Classification: D72, P16