Environmental Regulation Informed by Biased Stakeholders

Public consultations are widely used in regulatory processes, allowing stakeholders to present their viewpoints despite their inherent biases. Some stakeholders, such as firms, are known to be pro-business, while others, such as environmental NGOs, are pro-environment. We develop a framework to analyze how a regulator should process information provided by biased stakeholders. We distinguish between stakeholders whose biases are high and known and those whose biases are small but unknown, such as national authorities. We show that the regulator should follow the advice that runs counter to a stakeholder’s typical bias, i.e., to regulate if firms so advise, and not to regulate if environmental organizations so advise. Without such advice, she should prioritize the comments provided by stakeholders with smaller but unknown bias. Next, we contrast our theoretical results with the regulation of chemicals in the European Union. In line with our theory, we find that support for regulation has a strong and significant impact on the decision to regulate when the support comes from firms but not when it comes from NGOs and environmental agencies. We also find that national authorities have a stronger influence than other stakeholders in the regulation decision, both by the number of comments and the relative support.