Racing to the Bottom? Strategic Interaction among State and Federal Regulators

• In Event: State Executives

Abstract

A significant objection to devolution of regulatory authority to subnational governments in federal systems is the concern that it will result in an interjurisdictional "race to the bottom” (RTB). In the U.S. context, this logic suggests that state governments may be motivated to reduce regulatory stringency to gain a competitive advantage over their neighbors in the chase for mobile capital, thereby creating an aggregate movement toward the lowest common denominator. This argument is by now deeply ingrained in both scholarly and popular discourse, but empirical support for the RTB phenomenon in the existing literature is surprisingly weak, and some scholars have argued that fears of a regulatory RTB are significantly overblown. On the whole, difficulties in constructing convincing empirical tests have hampered the development of a consensus on the issue.

In this paper I employ a new empirical test that leverages differences in state implementation of an important U.S. federal regulatory program, the Occupational Safety and Health Act. The Act allows states are to assume responsibility for implementing and enforcing federal OSHA standards, but it does not require them to. In practice, about half the states have chosen to assume this responsibility, providing a relatively unique opportunity to compare the behavior of state and federal regulators who are implementing the same program. RTB theory suggests two hypotheses: (1) state regulators will engage in a pattern of strategic interaction that leads state enforcement behavior to be affected by the enforcement behavior of other states, and (2) strategic interaction will not impact enforcement behavior in those states in which the federal government implements the program.

The analyses will be conducted utilizing a set of Heckman-style selection models for panel data, in which the first stage models the probability that a state will be delegated authority to enforce federal OSHA regulations as a function of a set of intrastate political, bureaucratic, and economic variables, and the second stage is a set of strategic interaction models that model each state’s regulatory enforcement behavior (inspections and violations) as a function of other states’ behavior, controlling for these intrastate factors. The primary variable of interest is the strategic interaction variable, which is a spatial lag term that represents a weighted average of competitors’ enforcement effort. Comparing the behavior of state regulators to those in the federal OSHA should shed new light on the RTB debate.

Author

• Neal Woods, University of South Carolina