Preventing Capture: Policymaker engagement yields cutting-edge research questions

The Tobin Project seeks to facilitate an ongoing exchange of ideas between academics and policymakers that can motivate both better scholarship and better public policy. One example of this process is Tobin’s initiative on Preventing Capture, which asks: How can regulation be optimized to serve the public good without falling prey to “capture” by special interests? 

In 2009, as the financial regulatory reform process gained steam, several scholars offered expertise developed through the Tobin Project’s Government & Markets research initiative to help confront emerging policy challenges related to regulation. While the scholars’ research informed new policy on systemic risk management and the design of the Consumer Financial Protection Bureau, policymakers continually raised one question: How can we protect new regulatory agencies from the threat of industry capture?  

Tobin Project scholars, including Daniel Carpenter (Harvard University, Government), Steven Croley (University of Michigan Law School), and David Moss (Harvard Business School), offered guidance on the question of regulatory capture based on the latest research available, but recognized that contemporary scholarship has not offered adequate insight. To address this problem, Professors Carpenter, Croley, and Moss launched the Tobin Project’s Preventing Capture initiative in 2010, convening leading experts to produce an edited volume on how to design and reform regulatory agencies to better serve the public interest and to limit industry capture. The edited volume, Preventing Regulatory Capture: Special Interest Influence and How To Limit It was published by Cambridge University Press in October 2013, and the introduction, conclusion, and afterword are available for free download

Guided throughout the research process by questions from policymakers, the research inquiry is again beginning to inform policy. Senator Sheldon Whitehouse (D-RI) has worked with authors to ground the volume in real-world policy concerns and wrote an afterword to the volume. Senator Whitehouse has also incorporated author Susan Webb Yackee’s (University of Wisconsin-Madison, Political Science and Public Affairs) research into a Senate bill that aims to prevent regulatory capture.



March 2009: Legislation is introduced in the House and Senate proposing a new agency to protect consumers of financial products.

The Financial Product Safety Commission Act of 2009 is introduced in the House and Senate, proposing a government body that would track and regulate consumer financial products, an idea derived from Elizabeth Warren (Harvard Law School)’s research and recommendations. Professor Warren had originally developed her idea for a Financial Products Safety Commission (FPSC) through a discussion paper written for a Tobin Project meeting of the working group on Risk in May 2007.

April 2009: At Tobin’s Government & Markets conference, scholars further develop research with policymaker input on the regulation of consumer financial products.

Larry Lavender, Republican staff director for the House Financial Services Committee, sits on a panel at the Tobin Project’s 2009 Government & Markets conference, discussing Daniel Carpenter’s paper on how regulation of consumer financial markets could instill confidence in market actors. Mr. Lavender encourages Professor Carpenter to share his conclusions in a form more accessible to policymakers.

Summer 2009: Tobin scholars provide expertise in the development of the Consumer Financial Protection Agency and are asked how to prevent “capture” at the new agency.

In response to a request from Larry Lavender, Professor Carpenter prepares a memo that outlines the market-constituting possibilities of a consumer financial protection bureau and methods for preventing “industry capture” in such a regulatory body. The Tobin Project distributes this memo and also arranges for Professor Carpenter to share his research from the 2009 Government & Markets conference with Representative Brad Miller (D-NC), who was working on consumer financial protection for the Financial Services Committee. Rep. Miller reaches out in a personal letter to Professor Carpenter and the Tobin Project to ask for assistance on designing a more capture-resistant Consumer Financial Protection Agency (CFPA). 

Fall 2009: Tobin scholars Steve Croley and David Moss advise key policymakers on systemic risk regulation and consumer financial regulation, fielding questions regarding how best to prevent regulatory capture.

The Tobin Project connects Congressman Miller’s office with Steve Croley, who provides added insight on the question of how to structure the proposed CFPA from his perspective as an expert on administrative law. David Moss works closely with several members of the House Financial Services Committee and staff of the Senate Banking Committee, drawing on his research with the Tobin Project’s working group on Risk to advise policymakers on the need for vigorous systemic risk regulation. Both scholars field questions about the potential capture of a systemic risk regulator or a consumer financial protection agency by the financial industry.

November 2009: In response to a request from lawmakers, Professor Croley prepares a memo on preventing capture at the proposed CFPA. 

Professor Croley prepares a memo for lawmakers that provides concrete recommendations for minimizing the risk of capture at the proposed Consumer Financial Protection Agency (CFPA). Professor Croley emphasizes several points, including that the agency should have an independent director appointed by the President; be vested with independent rulemaking, adjudication, and litigation authority; maintain an autonomous budget; possess an advisory board with a robust consumer protection mandate; issue annual reports to Congress; and rely on a separate mission statement.

Early 2010:  Professors Carpenter, Croley, and Moss propose a Tobin Project initiative on “preventing capture” and prepare to develop an edited volume, titled Preventing Capture: Special Interest Influence in Regulation, and How to Limit It.

Having been asked numerous times for advice on regulatory capture, Professors Carpenter, Croley, and Moss observe that contemporary scholarship has not offered adequate insight into where regulation can be most effective and how weak or captured agencies might be strengthened. The three begin to build the concept for a Tobin Project initiative that would define capture, clarify the extent to which it describes regulatory dynamics, and examine how to prevent it where it does occur. 

Working through the Tobin Project, Professors Carpenter, Croley, and Moss begin to gather authors for an edited volume that will address the question: “How can regulation be optimized to serve the public good without falling prey to ‘capture’ by special interests?” Prospective authors are motivated by the belief that capture has been poorly defined and often misdiagnosed by academics and policymakers alike, leading in some cases to an overemphasis on deregulation as a one-size-fits-all solution to the problem of regulatory capture. There are reasons to believe that capture can be avoided when the goals of regulatory agencies are better defined and designed with the goal of preventing capture. 

August 2010: Senator Sheldon Whitehouse (D-RI) holds a Congressional hearing on preventing regulatory capture.

Senator Sheldon Whitehouse holds a Congressional hearing on regulatory capture, aiming to raise awareness about the threat of agency capture and to develop ways of identifying and preventing capture. Professor Carpenter submits a comment for the record. At the hearing, six areas of agreement emerge out of the witnesses’ testimonies: (1) regulatory capture exists, (2) the stakes are extremely high, (3) there is an institutional mismatch between advocates of public and special interests, (4) mechanisms of administrative law lend themselves to abuse, (5) regulatory capture is secretive, and (6) the damage can be great.  This same month, Professor Croley joins the White House Domestic Policy Council as Special Assistant to the President for Justice and Regulatory Policy.

November 2010: Contributors to the Preventing Capture volume meet for a workshop at the Tobin Project, joined by Senator Whitehouse.

Authors meet to discuss drafts of their chapters and to exchange perspectives with Senator Whitehouse. The Senator identifies capture as a major threat to democracy and begins to build a proposal for a process of identifying and addressing this problem. Senator Whitehouse suggests that policymakers need help from scholars and experts to develop tools for identifying signals of regulatory capture. He expresses interest in a new idea proposed by Susan Webb Yackee (University of Wisconsin-Madison, Political Science and Public Affairs) at the meeting.

Winter 2011: Professor Yackee discusses proposed legislation aimed at preventing capture with Senator Whitehouse’s staff.

Senator Whitehouse’s staff reaches out to Professor Yackee, recognizing her expertise and innovative ideas from the Tobin Project meeting. The staff member explains that the Senator intends to propose a bill that would create an Office of Regulatory Integrity, similar to what he outlined at the November workshop. Professor Yackee recommends that the Senator pair the bill focused on continuous investigation of agency capture with another bill that requires increased reporting for the agencies that enforce federal laws. She offers specialized knowledge to assist Senator Whitehouse’s office with the development of a system of reporting that would not be too onerous for regulatory agencies. Emphasizing that there is no hard data to support the assumption that business dominates rulemaking, she suggests that public commentators be categorized into different types. The data from such a system could then be used to identify instances of capture, a proposal that Professor Yackee also makes in her chapter for the Preventing Capture volume. 

July 2011: Senator Whitehouse introduces two bills to address agency capture.

Senator Whitehouse introduces two bills that aim to prevent agency capture.  First, the Regulatory Capture Prevention Act would create a body within the Office of Management and Budget charged with investigating and reporting regulatory capture. Second, the Regulatory Information Reporting Act would set up a public website where regulatory agencies report about the parties that comment on an agency regulation, including whether the parties affected the regulatory process.

January 2013: Senator Whitehouse co-authors an afterword to the Preventing Regulatory Capture volume with James Leach, Chairman of the NEH and former Congressman (R-IA).

In the co-authored afterword to the volume, Senator Whitehouse and Chairman Leach offer their perspectives on special interest influence in regulation as experienced practitioners, distilling the lessons from the volume and connecting the idea of preventing capture to practice. 

October 2013: The Tobin Project publishes a new volume, Preventing Regulatory Capture: Special Interest Influence and How to Limit It.

The volume, published by Cambridge University Press, includes contributions from over a dozen leading scholars of law, economics, and political science. It aims to add to our understanding of the conditions under which regulation can serve the public good and ways to prevent and limit capture where it does emerge. Upon publication, the book quickly attracts attention: the chapters have been downloaded thousands of times from the Tobin Project’s website by the time the book is released, and several sections of the book are taught in university classes across the country.