The Economic Consequences of Legislative Oversight: Theory and Evidence from the Medical Profession

This paper provides a positive analysis of how formal, periodic legislative oversight of regulatory agencies can influence market outcomes and the welfare regulated industries. Whereas previous research has focused on the political distinction between passive and active legislative oversight, this paper shows that there exists an important economics difference between the two mechanisms as well. We develop a principal-agent model that describes how a regulatory agent's incentives are influenced if its actions are publicly scrutinized. our empirical analysis supports our claim that formal oversight leads to measurable economic effects.