Regulatory Policy Decisions and Implications for Political Strategy

In complex political systems, policymaking unfolds across multiple institutions with overlapping authority. When regulators are delegated the power to set policy—such as determining the social cost of carbon—they must anticipate the reactions of both legislative and executive branches that retain the ability to overturn their decisions. Each institution features its own pivotal actor: the median voter in a regulatory commission, legislature, or the executive leader. These actors have distinct policy preferences, which shape the strategic interaction among institutions.

If a regulator selects a policy too far from the preferences of the legislature or executive, it risks being overruled. In such cases, the regulator adjusts its policy downward to a point that, while suboptimal from its own perspective, will not trigger a legislative override. The final policy thus reflects a constrained optimization, influenced by the relative positioning of ideal points across institutions. The pivotal institution—the one that effectively defines the boundary of acceptable policies—varies depending on the political configuration. When the executive's ideal point sits between those of the regulator and legislature, it can act as a veto player and define the equilibrium. When the regulator's median is closer to the executive than the legislature is, the regulator gains more autonomy.

These dynamics have strategic implications: interest groups seeking to influence policy must identify and target the pivotal institution, rather than the one with formal authority. Effective lobbying depends not just on institutional access, but on the distribution of political preferences and veto power. The analysis highlights that equilibrium policy outcomes are not simply a function of institutional design, but of the strategic positioning of actors within and across those institutions.

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