In-House Regulators: Documenting the Impact of Regulation on Internal Structure

Kirby Smith:

In a deregulatory environment, what do regulated firms do? The standard assumption is simple: firms revert to their pre-regulatory form. This Essay challenges that basic assumption. Increasingly, regulation is conducted through broad standards foisted on firms to implement internally. Congress articulates a policy goal; agencies enact specific standards for regulated entities; and firms are left to sort out how to comply with such standards. Recent mandates in financial, privacy, and medical regulation exemplify this approach. Despite these changes, scholars have not turned their attention to how this new form of regulation changes the structure of the regulated entity. Using case studies and theoretical insights, this Essay hypothesizes that the structures firms create in a regulated environment will not immediately disappear in a deregulatory world. Rather, they will persist. Modern regulation causes firms to make department-specific investments and centralize information gathering. Firms accomplish this, in part, by increasing the presence of regulatory-related staff. And, once these investments are completed, they will insulate regulatory-related staff from immediate removal in a deregulatory environment. That is, in-house regulators will be sticky. This Essay aims to provide an array of theories to support this phenomenon.


Deregulation is an integral part of President Trump’s agenda.1 Scholars have been quick to point out that there are multiple headwinds to his deregulatory agenda. The Senate stymied efforts to repeal and replace the Affordable Care Act, for instance.2

Congressional repeal is not Trump’s only option—regulatory changes have focused on agency process. But scholars are also quick to point out that deregulation faces both legal and practical hurdles. In the legal realm, the repeal of rulemaking must go through the standard notice-and-comment process,3 and can be challenged as arbitrary and capricious.4 On the more practical side, deregulation requires the cooperation of a vast bureaucracy consisting of agency employees with their own incentives.5