Regulatory Agencies

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Most regulatory matters are settled informally; only a small number result in litigation. When a company is in a dispute with a federal agency, it knows that if it does not reach a settlement, there can be costly litigation. From the perspective of the government agency, the litigation is costless-the taxpayers foot the bill. Agencies know that the threat of costly litigation enhances their chance of extracting a settlement from the company.

QUESTION
Should the government use this leverage to extract more in a settlement than it knows it would be likely to get in a court-resolved dispute?

Suppose you are an administrator at the Environmental Protection Agency. It has been reported that a plant in a small town is in violation of the environmental laws. If you enforce the laws’ requirements, the plant will be forced to shut down. The plant is the major source of employment for the town, and its closure would impose severe economic hardships.

QUESTION
Should that fact play a role in regulatory enforcement?

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