The behavior of regulatory commissions: a case study of the Virginia State Corporation Commission

Abstract

Public utility regulation in the United States is carried out primarily by independent regulatory commissions. Though created to deal with problems which the courts and legislature had previously been at a loss to solve, the commission form of regulation has not been very successful. Students of regulation are in general agreement that commissions have failed to implement policies which serve the public interest, though the explanations for that failure are quite varied. By using time series data collected from the Virginia State Corporation Commission, it was possible to test the usefulness of several leading theories of regulatory behavior. The theories can be categorized primarily as either traditional or political economic--bureaucratic. The traditional theory and Stigler's captured bureaucracy theory were most consistent with the data. However, few implications could be drawn from the analysis which could be used to prescribe policy changes for improved commission performance. While all of the theories proved useful in explaining certain observed phenomena, they all suffered from serious shortcomings. None was useful as a general tool to describe behavior, and none was valuable for predicting agency behavior regarding a particular issue. The primary decision variable suggested by all of the theories is the budget of the agency. It was concluded that this measure is too narrow, whether we are dealing with a traditional theory, where budget is a measure of agency vitality, or a bureaucratic theory, where budget serves as the primary argument in the regulator's utility function. Rather, it is necessary to include other measures of both vitality and utility if one is to have a workable theory. The primary weakness of all of the theories is the failure to include the decision calculus of the agency's sponsor, and other interested groups, into the explanation of agency behavior. We conclude that if we are to construct a theory which is able to explain more than piecemeal the behavior of regulatory agencies, or in any way predict that behavior with respect to specific issues, such a theory must include interactions between the agency and all interested parties.