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Regulating the Revolving Door of Regulators: Legal vs. Ethical Issues

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  • Elise S. Brezis

    (Department of Economics, Bar-Ilan University, Ramat Gan 52900, Israel)

Abstract

This paper analyzes the effects of the revolving door, concentrating not only on the dynamics between regulators and firms but also on whether regulating the revolving door is optimal from the point of view of society. The study explores the trade-off between two interconnected aspects related to the revolving door: the ‘lack of competence’ and ‘greed’ of regulators. On the one hand, the revolving door facilitates the recruitment of highly qualified regulators by the government, drawn by the prospect of lucrative future compensation packages. On the other hand, it allows regulators to succumb to greed, enabling them to receive revenues after their term in office. This paper emphasizes that this propensity toward greed can manifest through two distinct channels: ‘regulatory capture’, which is illegal, and ‘abuse of power’, which, while legal, is unethical. This paper highlights that distinguishing whether the behavior of the regulator is either unlawful or unethical is of utmost importance for analyzing the optimal policy concerning regulators. On one end, the capture models advocate for regulated oversight of the revolving door to prevent corruption. On the other end, models of abuse of power, characterized by regulators generating ‘bureaucratic capital’, contribute to the acceptance of the revolving door practice.

Suggested Citation

  • Elise S. Brezis, 2023. "Regulating the Revolving Door of Regulators: Legal vs. Ethical Issues," Economies, MDPI, vol. 12(1), pages 1-13, December.
    • Handle: RePEc:gam:jecomi:v:12:y:2023:i:1:p:5-:d:1307330
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    References listed on IDEAS

    as
    1. Lucca, David & Seru, Amit & Trebbi, Francesco, 2014. "The revolving door and worker flows in banking regulation," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 17-32.
    2. Luechinger, Simon & Moser, Christoph, 2014. "The value of the revolving door: Political appointees and the stock market," Journal of Public Economics, Elsevier, vol. 119(C), pages 93-107.
    3. Brezis, Elise S. & Cariolle, Joël, 2019. "The revolving door, state connections, and inequality of influence in the financial sector," Journal of Institutional Economics, Cambridge University Press, vol. 15(4), pages 595-614, August.
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    5. Per J. Agrell & Axel Gautier, 2017. "A Theory of Soft Capture," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(3), pages 571-596, July.
    6. Haris Tabakovic & Thomas G. Wollmann, 2018. "From Revolving Doors to Regulatory Capture? Evidence from Patent Examiners," NBER Working Papers 24638, National Bureau of Economic Research, Inc.
    7. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    Full references (including those not matched with items on IDEAS)

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