Person:

Jackson, Howell

Interest group pluralism presumes that public policy outcomes are determined principally through a contest for influence among organized pressure groups. Most interest groups, however, do not represent themselves in this process. Rather, they rely on professional lobbyists for representation, information, and advice. These lobbyists are agents with their own interests, and these interests may not align perfectly with those of their clients. This essay outlines this principal-agent problem and sketches its possible implications for policy outcomes. In particular, we hypothesize that the lobbyist-client agency problem may bias policy in favor of small homogeneous groups, may exacerbate status quo bias and lead to excessive attention to symbolic issues, may promote expansive delegations to administrative agencies, and may impede systematic reforms to the policy-making process.

The recent financial crisis has led many to question how well businesses deliver services and how well regulatory institutions address problems in consumer financial markets. This paper discusses consumer financial regulation, emphasizing the full range of arguments for regulation that derive from market failure and from limited consumer rationality in financial decision making. We present three case studies—of mortgage markets, payday lending, and financing retirement consumption—to illustrate the need for, and limits of, regulation. We argue that if regulation is to be beneficial, it must be tailored to specific problems and must be accompanied by research to measure the effectiveness of regulatory interventions.

The recent financial crisis has led many to question how well businesses deliver consumer financial services and how well regulatory institutions address problems in consumer financial markets. In response, the Obama administration proposed a new agency to oversee consumer financial services, and the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act embraced the Administration’s proposal by creating the Bureau of Consumer Financial Protection. Other regulatory reforms have been advanced, and in some cases adopted, in recent years, at both the federal and state level. In this paper, we provide an overview of consumer financial markets, detailing the purposes they serve, the extent to which they suffer from market failures or other deficiencies, and the structure of our current system of regulation. To illustrate our analytical framework, we present case studies on retirement savings, residential mortgages, payday lending, and mutual funds. We conclude with a series of observations on the limits of government intervention, suggestions about how to measure whether government intervention is successful, and potentially fruitful lines of future research and data collection.