Berkeley Program in Law and Economics

In many countries administrative procedures have been identified as a major obstacle to private investments and economic growth. Without overtly questioning the substantive aspects of government regulations, critics of the current state of administrative procedure challenge its complicated details and the time that applications and their decisions consume. Some of the literature dealing with administration as the agent of politics picks up the question of how public administrations and administered individuals interact strategically in the administrative process. Most often this line of research concentrates on regulated utilities and government procurement. However, there is hardly any theoretical economic basis for the study of one of the most important, if not the most important, aspects of administrative procedure: the adjudication in bulk of applications for permissions or similar (very often dichotomous) government decisions. Such decisions en masse often are not made within strategic settings, as is usually—and quite appropriately—assumed in the literature on government regulation of public utilities etc. Instead, with masses of applicants filing applications and many administrators deciding upon them, strategic interaction is unlikely to occur: no single applicant expects to be able to influence the investigative behavior of the administrators, no single administrator expects to influence the behavior of the average applicant. Thus, adaptive behavior prevails on both sides of the interaction. All individuals will adapt to the expected, viz. average, behavior of their counterparts. A model for this side of administrative procedure is missing. It is the goal of this paper to develop a first step in this direction.