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Private interests in American government institutions

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PRIVATE INTERESTS IN AMERICAN GOVERNMENT INSTITUTIONS

Jordan Carr Peterson

A DISSERTATION PRESENTED TO THE
FACULTY OF THE GRADUATE SCHOOL, UNIVERSITY OF SOUTHERN CALIFORNIA,
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE
DOCTOR OF PHILOSOPHY, POLITICAL SCIENCE

August 2018
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ACKNOWLEDGEMENTS

My pursuit and completion of this degree would not have been possible without the support of a number
of individuals whom I’d like to acknowledge. Most immediately, I would like to recognize the members of
my dissertation committee, without whose advice this project would have amounted to much less than it
does. In particular, great thanks are owed to Christian Grose, for exceeding my every expectation regarding
the amount of encouragement an academic mentor could provide, and for his confidence in me, which
has with abundant frequency surpassed my own; to Jeb Barnes, for giving me a framework to engage the
academic world as both a scholar and a teacher, and for always challenging me to approach even familiar
problems in novel ways; to Pamela Clouser McCann, for exposing me to and trusting me with helping on
a wide range of research projects as I progressed through my graduate education, and for what must by
now have been many hours of listening to my streams of consciousness in her office; and to Tony Bertelli,
for offering instructive commentary on this project, and for his willingness to help out despite what must
have been the inconvenience to do so from far away. Beyond this, any of my achievements in graduate
school are in part the function of tremendously supportive faculty at the University of Florida College of
Law. Specifically, I appreciate the advice of Mary Jane Angelo, who helped me recognize the intersection
between my interests in law, politics, and public policy; and Diane Mazur, whose pedagogy blended insight
with humor in a manner I can only aspire to emulate, and who gently suggested some appropriate limits
on my own cynicism. I would also like to thank other faculty from USC and UF for their help over the
past decade, namely, Elizabeth DeCoux, Joan Flocks, Jeff Jenkins, Morris Levy, Jeff Sellers, Abby Wood,
and Danaya Wright.
I am also extremely fortunate to have had a robust network of support from friends and colleagues.
Many thanks are due Nathaniel Anderson, Danielle Boree, Katie DeLuca, Dana Gerber-Margie, Chris
German, Thora Giallouri, Susie Giles-Klein, Whitney Hua, Míchel Martinez, Elsa Menounou, Leigh Anne
Miller, Nico Napolio, Whitten Overby, Megan Paradise, Lisa Raphael, and Sherry Williamson for their
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patience and reassurance during this enterprise. I would also like to acknowledge Cathy Ballard, Veri
Chavarin, Aubrey Hicks, and Aurora Ramirez for making life as a research assistant, teaching assistant, and
graduate student immeasurably more bearable.
To have concluded my graduate and undergraduate education at the same institution, and
particularly with a gap of several years between the two, was at times an unusual experience. Having spent
two personally and intellectually consequential periods of time at USC, I now have the sensation as I walk
through campus that I see my life before my eyes. This reminds me, above all, of the distinct unlikelihood
that I would have ever elected to pursue a career in academia without the guidance and enthusiasm of
Gerry Clausing and the late Dagmar Barnouw, both of the erstwhile USC Department of German. Gerry
taught me it was possible to turn a critical eye on culture, politics, and society without taking myself too
seriously, and always exhibited an unrivaled kindness. Dr. Barnouw taught me there is no one and no thing
unworthy of my skepticism; demonstrated to me there is a subversive delight to indulging unpopular
contentions; and made me believe (probably for the first time) that I might have something worth saying.
I will always treasure the memories of her bravery, intelligence, and wit, and it remains my profound hope
that my work would have made her proud.
Last, infinite thanks to my family; especially to my parents, for never asking why I was still in
school after all these years; and to Brian, for making sure that all my papers have stayed neatly stored away
by means of the enduring, implicit threat that otherwise he’ll rip them up.
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Abstract: Do federal bureaucrats make policy choices associated with their personal financial
interests? Is this type of administrative decision-making more common among certain types of
bureaucratic officials versus others? And in what manner are the institutional dynamics when
federal judges review administrative policies shaped by the personal investments of judges and
bureaucrats alike? In this dissertation, I argue and find that bureaucrats make policy choices that
enhance or protect the value of their personal investments, subject to certain political, economic,
and social constraints. Likewise, I theorize and find that the personal finances of both federal
bureaucrats and judges are relevant for understanding the judicial construction of administrative
policy choices when agency regulations are subjected to judicial review. My results suggest the need
for continued and differentiated consideration of bureaucratic policy decisions in order to ascertain
the depth of any inadequacies in conflict of interest regulations, as well as to assess more fully the
appropriate degree of normative concern over administrative policy-making.

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TABLE OF CONTENTS

CHAPTER 1
Introduction:
Private Interests in American Government Institutions……………………………..…………….1

CHAPTER 2
The Outer Limits of Bureaucratic Neutrality:
Private Financial Interests and Decision-Making
on the National Labor Relations Board……………………..…………………………………….7
Theory: Private Financial Interests Influence Bureaucratic Decision-Making……………….……10
Decision-Making at the NLRB: Precedent, Partisanship, and Private Interests………….………..13
Identification Strategy: NLRB Assignment-to-Disputes as a Natural Experiment………………..17
Data and Methods……………………………………………………………………………….19
Results: NLRB Members Engage in Competitor Punishment……………………………………21
Discussion and Conclusion………………………………………………………………………24
Appendix………..…………………………………………………………………………….…32

CHAPTER 3
Separated Institutions Sharing Interests:
Interbranch Trust and Investment-Oriented
Judicial Deference to Administrative Policy Choices………………………..……………………33
Judicial Deference to Administrative Policy Judgments…………………….………….…….……36
Interbranch Investment Congruence and Judicial Evaluations of Agency Decisions…….………..37
Expectations for Investment-Oriented Judicial Deference…………………………………….….40
Data and Methods………………………………………………………………………………..44
Results: Judges Defer to Agency Policy Based on Investment Congruence……………………….48
Conclusion……………………………………………………………………………………….50

CHAPTER 4
Do Private Interests Govern Public Utilities?
The Personal Finances of Federal Bureaucrats
and Decision-Making on the Federal Energy Regulatory Commission…………………….……57
The Institutional Landscape of Federal Utilities Regulation……………………………………..60
Personal Financial Interests and Indirect Gains in Bureaucratic Decision-Making………………62
Expectations for Bureaucratic Asset Distribution and Pro-Industry Preferences……………..….65
Data and Methods………………………………………………………………………………67
Results: No Association between FERC Personal Finances & Votes on Orders………………...71
Conclusion………………………………………………………………………………….…..74

1
INTRODUCTION
On January 31, 2018, Brenda Fitzgerald, director of the Center for Disease Control and Prevention,
resigned her position after holding it for less than a year (Sun 2018). A statement released by the
Department of Health and Human Services upon Fitzgerald’s resignation indicated that she elected to
resign due to her ownership of “certain complex financial interests that have imposed a broad recusal
limiting her ability to complete all of her duties” (Department of Health and Human Services 2018).
In the foregoing weeks, members of Congress had grown increasingly concerned about potential
conflicts of interest stemming from Fitzgerald’s personal finances, and such concerns were only
exacerbated upon the revelation that Fitzgerald had traded in tobacco securities just a month into her
tenure as leader of the CDC (Smith and Ehley 2018). Although Fitzgerald suggested she could simply
recuse herself from instances in which she faced a financial conflict of interest, under mounting
pressure from public officials and ethics observers alike – who maintained the requisite number of
recusals to offset potential conflicts would preclude Fitzgerald from participating in a significant
amount of agency business – she resigned.
Brenda Fitzgerald’s story embodies the aspirational outcome for executive branch conflict of
interest rules in operation. Facing public scrutiny regarding the chance that the distribution of her
personal assets would unduly hinder her ability to fulfill her duties, a public official responsible for
making decisions that order a substantial portion of the American economy resigned from office. As
a general matter, however, when compared with choices by analogous actors in other institutions of
the American administrative state, the outcome in Fitzgerald’s case appears to be anomalous. Instead,
the regulatory scheme governing conflicts of interest in American administrative politics is
characterized by manifest uncertainty regarding the frequency and force with which such results apply
(Nolan 1992). Moreover, the degree of popular attention devoted to an administrator’s personal
finances rarely reaches the sort of fever pitch as surrounded Fitzgerald’s resignation, despite there

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existing an array of circumstances in which it is not unreasonable to question whether a bureaucrat’s
private interests may interfere with their capacity to adequately perform required tasks.
It is precisely these circumstances, where the personal financial interests of public officials in
the federal bureaucracy could conceivably impact their institutional performance, that I will examine
in this dissertation. We stand at a juncture in American political history where the private finances of
officials in the executive branch are receiving perhaps more attention than ever before, in part due to
the unprecedented wealth of the Trump cabinet (Tankersley and Swanson 2016). Despite the
comparative rise in popular interest, however, there has yet to be any scholarly or systematic
consideration of whether and how federal administrators’ personal finances affect the manner in
which they engage in the policy process. What remains to be seen, then, is what basis exists for the
prevailing (but abstract) normative skepticism that portrays executive branch conflict of interest
regulations as inoperable or dysfunctional. In other words, do the personal investments of federal
bureaucrats have policy consequences? If so, what are they, and under what political and economic
conditions do administrators make policy choices associated with their private financial interests?
In this dissertation, I theorize that all else equal, bureaucrats will make policy choices that
enhance or protect the value of their personal investments, subject to certain political, social, and
economic constraints. Depending on the institutional characteristics of the agency in question, the
type of bureaucratic decisions will differ, as will the scope and nature of their economic consequences.
It is possible, additionally, that administrators’ ability to make policy choices associated with their
personal investments will differ across agencies based on political, economic, and administrative
conditions. Likewise, I argue that judges reviewing federal agency policies will orient their decisions
toward industry interests when the distribution of their own private finances is closer to that of the
federal bureaucrat at the head of the agency whose policy is subject to review, suggesting a sort of
inter-institutional trust rooted in congruence of officials’ personal investments. My findings across the

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chapters that follow suggest federal bureaucrats do take into account their personal finances when
making policy choices, and further, that judicial deference to regulatory policy choices is associated
with congruence of personal investments between decision-making in judicial and administrative
institutions.
In Chapter 2, I argue that bureaucratic agents engage in calculated behavior based on their
personal asset allocations when deciding crucial issues of public policy by examining the role played
by National Labor Relations Board (NLRB) Members’ private financial interests in their approach to
the adjudication of disputes in industrial relations. Empirically, I leverage an institutional feature of
the NLRB that functions as a natural field experiment of political elites: the random assignment of
three-member panels to the labor disputes that reach the NLRB. I find that when adjudicating labor
disputes, Board Members are less likely to vote in favor of management disputants when they own
greater amounts of stocks and other equities in firms operating in the same sector as those disputants.
These results suggest bureaucrats support increased regulatory scrutiny into organizational practices
at competitor firms from industries in which they are personally invested in order to reinforce the
financial wellbeing of those firms in which they have a personal stake.
In Chapter 3, I consider whether judicial deference to administrative policy is associated with
congruence between judges’ and bureaucrats’ personal investments. I theorize that judges will defer
to agency choices more frequently when their personal investments coincide more closely with those
of the administrators in charge of the agency whose decisions are subject to judicial review. Judges are
more likely to trust the regulatory and adjudicatory judgments of administrative officials who more
closely share their personal financial interests. Such behavior is likely rooted in a belief, if implicit, that
those bureaucrats’ policy preferences will at minimum not disproportionately impair the value of their
own personal assets, and as such, will correspondingly protect or enhance the worth of the judges’
investments as well. Examining all cases from 2012-2015 in which judges from the District of

4
Columbia Circuit Court of Appeals – the federal appellate venue most commonly responsible for
reviewing administrative policy – I find that judges indeed defer to bureaucratic policy choices given
greater levels of inter-institutional asset congruence.
In Chapter 4, I examine decision-making at the Federal Energy Regulatory Commission
(FERC) and argue that even if bureaucrats are not directly invested in the industries or sectors
regulated by their institutions, administrative decision-making is likely associated less immediately with
the distribution of bureaucrats’ assets. I theorize that bureaucrats with higher levels of wealth held in
equities, higher proportionate exposure to securities markets relative to their entire portfolio, and
greater total wealth are expected to have a more favorable general disposition toward industry interests
in the market, and as such are more likely to demonstrate pro-industry preferences in their regulatory
decision-making. I assess a random sample of one-third of the 6488 orders issued by FERC from
2013-2015, but find no association between aggregate measures of the Commissioners’ wealth and
expression of pro-industry preferences. As discussed in the subsequent analysis, these discrepancies
in findings across chapters may be explained not just by the differences in theoretical orientations or
empirical tests employed, but by institutional differences across organizational components of the
federal bureaucracy, whose constituent parts necessarily differ on numerous dimensions to effectively
accomplish their regulatory goals.
Rather than definitive conclusions, this dissertation represents the early stages of a research
agenda that considers rigorously how and why federal bureaucrats’ private financial interests matter –
in particular, the investments of those administrators who have not recused themselves in
circumstances where reasonable persons might disagree over whether conflict of interest regulations
should or do apply. My argument and findings suggest that there do exist scenarios in which federal
bureaucrats make policy choices associated with their personal investments, and that the distribution
of personal assets for both judges and bureaucrats drive the inter-institutional dynamics of judicial

5
review for agency actions. The results also indicate, however, that there may be limiting conditions on
the extent to which administrators make regulatory decisions driven by their personal finances,
possibly based on the policy area for which their agency is responsible, the types of firms subject to
their agency’s regulatory program, or circumstantial differences in bureaucrats’ pre-tenure
professionalization. In future work, I intend to explore in greater detail the extent to which variation
in institutional design across the bureaucracy enables or constrains the capacity for administrators to
enact policies with broad public applicability and sweeping ramifications for the economy, but which
are at least in part associated with their personal investments. Such work should take into account
factors including but not limited to the bureau’s degree of institutional independence from executive
and industry influence, the procedural course by which disputes and policy-making opportunities
arrive on the administrative agenda, and the economic and technological circumstances in those
segments of the private sector subject to the agency’s regulatory aims. A more comprehensive
understanding of such administrative behavior as examined here would prove both practically and
theoretically instructive, by informing a more thorough conception of blind spots in executive branch
conflict of interest regulations, as well as by rendering the degree to which extensive policy-making by
administrative means might constitute a crisis in public authority more concrete.

6
Bibliography

Department of Health and Human Services. 2018. “Statement from U.S. Department of Health and Human
Services Regarding CDC Director Brenda Fitzgerald. “https://www.hhs.gov/about/news/2018/
01/31/statement-regarding-cdc-director-brenda-fitzgerald.html.
Karlin-Smith, Sarah and Brianna Ehley. 2018. “Trump’s top health official traded tobacco stocks while
leading anti-smoking efforts.” Politico. https://www.politico.com/story/2018/01/30/cdc-director-
tobacco-stocks-after-appointment-316245. January 30.
Nolan, Beth. 1992. “Public Interest, Private Income: Conflicts and Control Limits on the Outside Income of
Government Officials.” Northwestern University Law Review 87(1): 57-147.
Sun, Lena H. 2018. “CDC director resigns because of conflicts over financial interests.” Washington Post.
January 31.
Tankersley, Jim and Ana Swanson. 2016. “Donald Trump is assembling the richest administration in modern
American history.” Washington Post. November 30.

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CHAPTER 2

The Outer Limits of Bureaucratic Neutrality:
Private Financial Interests and Decision-Making
on the National Labor Relations Board

Jordan Carr Peterson

Abstract: Do private financial interests inhibit neutral bureaucratic decision-making in federal agencies? I
theorize that bureaucratic agents engage in strategic behavior based on their personal asset allocations when
deciding crucial issues of public policy. I examine the role played by National Labor Relations Board (NLRB)
Members’ private financial interests in their approach to the adjudication of disputes in industrial relations.
There are two competing theoretical expectations regarding the effect of Members’ personal financial interests
on their adjudicatory decisions. I expect that Members’ ownership interests in firms from particular economic
sectors will result in either (1) a long-term precedent creation strategy involving the creation of Board precedent
intended to shield future employer disputants in that sector from administrative intrusion; or (2) a short-term
competitor punishment strategy in which they support increased administrative scrutiny into organizational practices
at competitor firms from sectors in which they own stock in order to reinforce the financial wellbeing of those
firms in which the Member has a personal interest. Empirically, I leverage an institutional feature of the NLRB
that functions as a natural field experiment of political elites: the random assignment of three-member panels
to the labor disputes that reach the NLRB. I find that Board Members engage in competitor punishment when
adjudicating labor disputes. This study is normatively important, as it suggests that personal financial interests
– and not simply bureaucratic neutrality – affect administrative agency decisions. Methodologically, this is one
of the few true natural field experiments where bureaucrats are randomly assigned to make public policy
decisions.

8
“Compromise…has no place in the interpretation and enforcement of the law.”
- Franklin Roosevelt, 1935, Statement on Signing the National Labor Relations Act (NLRA)

The organizational ideals of bureaucratic government depend on the execution of public policy by
neutral bureaucrats who implement the law without partiality and based on their technical expertise
or professional specialization. Relative freedom from the influence of partisan politics and ideology,
particularly as compared with those public officials who gain access to political power by competing
in and winning elections, has been presented as a central feature of bureaucratic neutrality (Weber
1958). Given, however, the diverse and far-reaching social and economic consequences of
bureaucratic policy choices, partisan or ideological commitments are not the exclusive source of
complications for the conceptual ideal of bureaucratic neutrality. I argue that – in addition to the
traditional political and institutional factors associated with bureaucratic decisions – executive branch
officials’ private financial interests bear on their decision-making with respect to matters of public
policy, as well.
The necessity of bureaucratic neutrality for a properly functioning public bureaucracy has
prevailed in theories of American government since the rise of the administrative state. After reviewing
the pending legislation that would culminate in the creation of the National Labor Relations Board in
1935, Secretary of Labor Frances Perkins expressed her optimism that the proposed Board, intended
to bring peace and justice to American industrial relations, would “ignore all propaganda in an
administration and devote its entire time to the quiet unimpassioned performance of the judicial
process.” Despite garnering praise for its professionalism and efficiency, the NLRB has nevertheless
received criticism from left and right alike that Members are agents of more powerful political actors
and inflexibly partisan, with Republican Board Members generally ruling in favor of employer
disputants, while their Democratic counterparts regularly support organized labor (Flynn 2000). Here,
I intend to expand the consideration of NLRB decision-making beyond these established partisan

9
tendencies by examining the role played by Board Members’ private financial interests in their
approach to disputes between management and labor. I seek primarily to answer two questions: (1)
Do the personal financial interests of NLRB Members affect their decision-making in industrial
disputes?; and (2) What strategies does calculated behavior on the part of NLRB Members related to
their private financial interests entail?
I theorize that federal bureaucrats take into account their personal financial interests when
making decisions. In the case I examine, I argue that National Labor Relations Board Members will
consider their own personal financial investments when deciding on claims by employer and labor
disputants who come before the Board. Board Members whose investments include equity interests
in firms from economic sectors involved in industrial disputes will support those adjudicative
outcomes that benefit the firms in which they have substantial equity holdings. My theory suggests
that Members’ impulse to resolve labor disputes in the manner most favorable to their own financial
portfolio should manifest in one of two ways: either (1) a long-term precedent creation strategy, involving
the establishment or extension of Board precedent intended to shield future employer disputants in
that sector from as much administrative intrusion in their workplace bargaining environment as
possible; or (2) a short-term competitor punishment strategy in which Members support increased
administrative scrutiny into organizational practices at firms from the same economic sectors as those
whose stock the Members own, in order to disadvantage the competitors and reinforce the financial
wellbeing of those firms in which the Member has a personal financial interest.
The specific institutional characteristics of the NLRB make it an ideal vehicle for studying the
influence of personal financial interests on bureaucratic decision-making. Once a localized dispute
related to an unfair labor practice complaint or an employee petition for a representation election has
been decided by an administrative law judge (ALJ), regional director, or hearing officer, a three-
Member panel of the full five-Member NLRB is randomly convened to consider the dispute’s appeal.

10
Random assignment of Members to cases constitutes a natural experiment within the institution itself.
This allows the identification of a causal effect of individual Members’ financial interests on their
decision-making related to disputes in industrial relations. Natural field experiments with random
assignment of elite subjects is rare in the study of the bureaucracy, and relatively uncommon for the
study of political elites generally (Butler 2014; Grose 2014).
I test my argument’s claims by examining the relationship between NLRB Members’ votes in
labor disputes from 2011 until 2014, and the Members’ aggregate personal financial interest in firms
from the same economic sector as the employer disputant in each case. No scholar has examined
whether there is a relationship between bureaucrats’ private investments and their decision-making
related to public policy.
I find that NLRB Members are less likely to side with employer or management disputants
given increased ownership in stock from firms in the same economic sector as the employer. These
results complicate and compromise the ideal of bureaucratic neutrality by suggesting that labor
relations policy has developed not only as a function of legalistic reasoning by the NLRB or ideological
control by external political principals, but also as a result of sophisticated, strategic choices by Board
Members to make decisions that advance their private financial interests in the resolution of industrial
disputes.

Theory: Private Financial Interests Influence Bureaucratic Decision-Making
As the administrative state continues to expand, unelected officials working in the federal bureaucracy
enjoy an increasing amount of influence over vital matters of public policy (Lowi 1969). While some
theories of bureaucratic preferences maintain that bureaucratic decisions result from considerations
that reflect administrators’ specialization and professional training such as the agency’s specific task
environment (Wilson 1989; Warwick 1975) or internal organization (Downs 1967; Thompson 1967),

11
there is also substantial evidence that administrative choice is constrained by political forces by which
bureaucracy should theoretically be unburdened (Wood and Waterman 1994). Although bureaucratic
neutrality figures among the most prominent Weberian ideals for bureaucratic organization and
conduct, the suggestion that administrative decision-making falls short of this conceptual ideal is
hardly new. The failure to achieve (or even approximate) neutrality might arise because bureaucratic
actors make value-laden choices (Whitford 2007), or because they lack sufficient insulation from
external political actors to exercise professionalized judgment independent of overhead political
control (Noll 1985; Weingast and Moran 1983).
Indeed, the possibility that administrative agents exercise their discretion in order to engage in
“non-neutral,” value-laden decision-making probably does not represent categorical reason for alarm,
depending on which values bureaucrats substitute for objective neutrality and which impetus leads
them to deviate from the ideal. If a hypothetical bureaucrat faced with a policy decision encumbered
by a rigid legal framework subsequently employs whatever flexibility their position affords them in the
interest of some equitable outcome, the ideal of bureaucratic neutrality meets with a reasonable, if
idiosyncratic, objection. Complications arise, however, when bureaucrats supplant their neutrality with
motivations that seem unrelated to concerns about inefficiency or injustice in the administrative
apparatus. It is into the latter category that administrative agents making policy choices that advance
their private financial interests most likely fall.
Bureaucratic actors will make regulatory and adjudicatory decisions in the financial interests
of firms in which they themselves have a financial stake. The exercise of bureaucrats’ private financial
interests is not expected to operate to the exclusion of other potential determinants of bureaucratic
preferences, including the agency’s organizational norms and political control by officials in other
government institutions. Many heads of administrative agencies arrive at their position as political
appointments who are generally expected to promote and fulfill their appointing President’s preferred

12
policy agenda (Snyder and Weingast 2000), as opposed to career civil servants whose approach to the
agency’s mission primarily results from substantive expertise and professional dedication. However, I
expect that in addition to these political factors, unelected bureaucrats will work to enhance their own
financial interests.
While there has been some scholarly consideration of bureaucrats’ motivations at an individual
level independent of external political control, no prior scholar has theorized that bureaucrats may
engage in policy decisions that will enhance their own personal financial interests. Others have noted
that bureaucrats make policy choices to maximize their own policy preferences (Brehm and Gates
1999; McNollgast 1987), to maximize the agency’s budget (Niskanen 1971), or to increase the agency’s
budget conditional on the agency head’s policy preferences (Bertelli and Grose 2011), and prior work
has suggested that members of Congress make choices based on their personal investments (Peterson
and Grose 2015; Welch and Peters 1983), but no one has theorized or shown that bureaucrats
implement policy in a way that advances their own financial interests. In fact, in contrast to my
argument, some suggest that political appointees have little financial interest in serving in government
positions, arguing that many exit public service for financial reasons (e.g., Joyce 1990).
Bureaucrats who make regulatory or adjudicative decisions that materially further their own
private financial interests might well be in part a function of bureaucracy whose organization is
characterized not by the traditional ideals of specialized civil service, but by its political and ideological
subservience to other institutions in government. Demonstration of this novel theory regarding the
role played by private financial interests in bureaucratic decision-making would suggest that officials
in the American administrative state operate at the outer limits of bureaucratic neutrality. Significant
normative implications for governance and transparency may also follow, including investigation of
the efficacy of federal legislation prohibiting executive or administrative decision-making to enhance
personal financial well-being.

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Decision-Making at the NLRB: Precedent, Partisanship, and Private Interests
In order to test the theory of private financial interests in bureaucratic decision-making, I study
decisions made by the National Labor Relations Board from 2011-2014. An independent agency in
the executive branch, the NLRB was initially a product of the National Labor Relations Act of 1935
(the Wagner Act), with its statutory mandate substantially modified by the Labor-Management
Relations Act of 1947 (the Taft-Hartley Act) and the Labor-Management Reporting and Disclosure
Act of 1959 (the Landrum-Griffin Act). The Board is primarily responsible for the adjudication and
resolution of unfair labor practice and union representation concerns arising in the course of American
labor relations (Gross 1996). The NLRB is substantively important given that its decisions have far-
reaching consequences for both labor and business. The Board is the primary adjudicatory institution
responsible for the resolution of disputes arising between labor unions, employers, and both organized
and unorganized workers, and is responsible for the development and refinement of its own internal
body of case law and precedent related to the National Labor Relations Act (Gregory and Katz 1979).
The NLRB’s fulfillment of its statutory mandate proceeds in a political environment
influenced not only by procedural rules internal to the organization, but also by attempts at political
control by public officials external to the Board. Previous research has suggested the possibility of
external political control by the President (Delorme and Wood 1978), Congress (Moe 1985), and the
judiciary (Wohlfahrt 2010). Despite its formally independent status, Board Members are readily
identified as Republicans or Democrats (Cooke et al. 1995; Delorme and Wood 1978; Snyder and
Weingast 2000) who generally vote in keeping with these partisan identities (Semet 2016). Moreover,
an organizational norm regarding partisan makeup on the NLRB has developed in the years since the
Board’s creation, dictating that at any given time no more than three of the five Members should come
from one party (with the party majority reserved for the party of the incumbent President). The
Board’s development of American labor relations policy, then, takes place subject to various internal

14
and external political constraints. Prior studies of NLRB decision-making, however, have not
considered the way in which Members’ adjudicatory rulings might be influenced by their individual
asset allocation.
Since the NLRB as an institution operates at the front lines of legal conflicts between labor
and management regarding economic policy, the possibility that Board decisions might be related to
the personal financial interests of Board members implicates serious normative concerns related to
the impartiality and social bases for the NLRB’s administration of U.S. labor policy. Furthermore, it
is a difficult case for a test of my theory as the Board has been regarded as “one of the most
professional, efficient, and successful of government agencies” (Moe 1985). Thus, if I find evidence
that Board Members’ financial interests influence decisions in the case of the NLRB, it is likely that
financial interests may also influence agencies that are less professionalized. Additionally, due to the
format of Board adjudicatory decisions, the NLRB is often “continually forced to choose between
labor and business” (Moe 1985), making it straightforward to measure Board Members’ choices that
could help or hurt firms, industries, or unions.
My theory suggests that, all else equal, a Board Member will rule in disputes before the NLRB
in order to advance their personal financial interests. Although Congress and the Office of
Government Ethics have collaboratively enacted a robust regulatory framework prohibiting executive
branch officials from making decisions that redound directly to their economic benefit (18 U.S.C. §
208; 5 C.F.R. Part 2635), there remain indirect ways in which federal bureaucrats might make policy
that enhances their investment portfolio. There are two countervailing observable implications of the
hypothesized approach to adjudicatory decision-making at the NLRB: (1) the precedent creation
strategy; and (2) the competitor punishment strategy.
The precedent creation strategy involves Board Members intentionally extending or
establishing internal Board precedent in order to protect future employer disputants from firms in

15
sectors in whose success Members themselves have a substantial financial interest. This approach is
akin to the adage that a rising tide lifts all boats; by purposively capitalizing on their role in the
administrative construction of industrial relations policy, Board members seek to shield those
economic sectors in which they are most exposed from subsequent administrative scrutiny. The
establishment of Board precedent is particularly important since precedent is generally respected by
the administrative law judges who handle the disputants’ initial NLRB adjudication. Further, Board
Members serve only five-year terms, so precedent creation may serve as the most enduring way for
them to influence the legal environment of economic sectors in which they have personal financial
interests. While this strategy assumes Board Members consider a relatively long time horizon as
regards the return on their investments, Members’ unique expertise in a somewhat arcane area of law
and public policy assures they are capable of such sophisticated and prospective conduct, intended to
guard economic sectors in which they are heavily invested from undue administrative intrusion. This
motivates the precedent creation hypothesis:
Precedent Creation Hypothesis: The greater a Member’s personal
financial investments in a certain economic sector, the more likely that
Member will rule in favor of that sector’s employer/management
disputants before the NLRB.

It is possible, alternatively, that Board Members engage in a more short-term mode of strategic
calculation regarding the furtherance of their private financial interests when they decide on labor
disputes. In contrast to the notion of precedent creation, the competitor punishment strategy locates
the optimal tactic for Board Members to advance their personal financial interests in their ability to
marshal the full remedial capacity of the NLRB to sanction firms competing with those in which the
Members own stock. This alternative approach suggests that the precedent creation strategy’s
protection of firms in “friendly” economic sectors (i.e., those in which the Member owns more stock)
may prove ineffective. Namely, the probability that other firms from the same sector in which the
Member is heavily invested will reap the benefits of pro-management precedent may be comparatively

16
low. By the zero-sum terms of the competitor punishment approach, in contrast, the Member
affirmatively singles out for administrative retribution those firms from sectors in which the Member
owns more stock. The Board’s expansive remedial authority allows it to financially hamstring and even
bankrupt companies found to have violated their employees’ right to organize free from interference.
This approach emphasizes the relative scarcity of economic success, and reflects suspicion that Board
precedent can even be constructed in such a manner that it applies differentially or uniquely to
different economic sectors. Indeed, the scope of substantive inquiry in matters before the NLRB is
arguably relatively narrow in nature, both by congressional design and as befits the theoretical
justification for bureaucratic organization. This substantive focus may limit the sector-specific
relevance of Board precedent, rendering a precedent creation strategy ineffectual even independent of
its extended time horizon. Instead, Members’ immediate financial holdings in competing firms from
the same sector as disputants before the Board are expected to perform favorably if competitor firms
involved in labor disputes are penalized by the NLRB. This, along with the likelihood that the Board
is structurally ill-fitted to craft industry-specific precedent, suggests a more aggressive approach to the
advancement of private financial interests, reflected in the competitor punishment hypothesis:
Competitor Punishment Hypothesis: The greater a Member’s personal
financial investments in a certain economic sector, the less likely that
Member will rule in favor of that sector’s employer/management
disputants before the NLRB. As the Member must recuse when the case
involves a firm in which they directly own stock, a vote against immediately
punishes a competitor firm in the same sector.

Although the observable implications predicted by these two hypotheses appear to contradict
one another, empirical support for either expectation would reflect fundamentally the same
phenomenon underlying NLRB adjudication: a demonstrable tendency among Board Members to
resolve industrial disputes in a way that advances their personal financial interests. The possibility that
Board Members and other bureaucratic officials make policy decisions in furtherance of their private
financial interests might be tempered by professional and organizational imperatives, especially if the

17
foremost classical rationales for vesting policymaking power in a bureaucracy rather than elected
officials, including political neutrality and technical expertise, remain relevant. In addition, bureaucratic
actors including Members of the NLRB may be constrained by numerous external political principals
as well as judicial review. However, given the relative lack of attention paid to NLRB decisions in the
general public, this creates an opportunity for their policy preferences to be affected or informed by
their private interests even faced with the norms of bureaucratic neutrality.
There is a second face, then, to bureaucrats’ freedom from electoral pressures, in the form of
attenuated accountability to voters and citizens. Despite the existence of myriad court-enforced
mechanisms of review intended to monitor bureaucratic decision-making, including judicial review of
NLRB adjudications, these procedural devices tend generally to prevent only the most egregious and
inexcusable agency actions. Further, they may reflect political or ideological objections to
administrative policies by federal courts as much as they do a mechanism for indirect oversight of
bureaucratic choices by the judiciary. Likewise, the comparatively politicized nature of agency heads
in the American bureaucracy serves to distance U.S. administrative agencies in operation from the
technocratic ideal. This distance might, however, additionally enable or empower administrative agents
to make decisions related to public policy that are also related to their own private investments. Here,
I intend to focus empirically on decision-making at the National Labor Relations Board in order to
examine the effect of bureaucratic officials’ private financial interests on their adjudicatory choices.

Identification Strategy: NLRB Assignment-to-Disputes as a Natural Experiment
The institutional design of the National Labor Relations Board enhances its appeal as a component in
research that considers the role of personal financial interests in bureaucratic decision-making. Since
1947, the Board has been composed of five members serving staggered terms, with the party
occupying the Presidency generally (but not without exception) controlling a majority of the five seats.

18
Upon adjudication of a dispute related to either an alleged unfair labor practice or a contested
representation election, brought pursuant to sections 8 and 9 of the National Labor Relations Act and
reaching the Board after a localized dispute has been decided by an administrative law judge or NLRB
regional director, a three-Member panel of the five-Member Board is randomly assigned to consider
the appeal, subject to further judicial review by the United States Courts of Appeals (29 U.S.C. § 158-
159).
The random assignment of Board Members to disputes functions as a natural field experiment.
This natural experiment allows me to identify the causal role of individual Board Members’ financial
interests and their investment profile in their decision-making, as long as the Board Members have
sufficiently distinct financial assets and investments. This identification strategy allows for a clean,
exogenous measure of each Member’s financial interests, which is often not possible when studying
political institutions (Grose 2014).
Prior studies have considered the influence of public officials’ private financial interests on
their decision-making using a research design that is observational in nature, and others have utilized
the natural experiment present in the Board’s procedure for the assignment of Members to disputes
in order to consider the effect of Members’ partisan identification on either their pro-labor or pro-
management tendencies. No previous scholar, however, has used a natural experimental design to
investigate the role played by public officials’ personal financial interests on their decision-making.
This strategy takes advantage of the NLRB procedure for random assignment of Board Members to
disputes in order to support plausible causal claims about the effect of Members’ personal investments
on their decision-making in labor disputes.
In order to assess the claim of random assignment of NLRB Members to disputes over the
time period in question, the results of a randomization check are presented in Table 1. If
randomization of member assignment occurred, then I would expect to find no statistically significant

19
difference in means in Table 1. This table compares the distribution of labor disputes across Members
on Member-level covariates, and the results of a difference of means test suggest that the null
hypothesis of equal means between the expected and actual dispute distributions cannot be rejected
based on the covariates of gender and party.
1

[ TABLE 1 ABOUT HERE ]

Data and Methods
In order to examine the influence of private financial interests on decision-making by Members of the
National Labor Relations Board, I estimate a logistic regression model. To construct the dependent
variable and key independent variables, I created an independent dataset containing information for
all the cases decided by the NLRB from 2011-2014 (over 900 labor disputes). This original dataset
includes the labor dispute outcomes (whether Members favored the labor or management disputant),
the industry of the management disputant,
2
and the initial disposition of the case (whether the Member
voted to overturn the underlying holding by the administrative law judge, regional director, or hearing
officer).
3
Next, I gathered the financial disclosure forms for all NLRB Members from 2011-2014; most
forms for the period were available online at the Executive Branch Office of Government Ethics
website,
4
and additional forms were obtained by contacting an Ethics Officer at NLRB. These
additional forms were given to me as hard copies by the Ethics Officer, totaling many hundreds of

1
While there is no statistically significant difference in either mean, I nevertheless include a covariate for party in
models I estimate below in keeping with strong expectations about partisan decision-making on the NLRB.
2
The industries coded were agricultural, automotive, casino, construction, education, finance, food/grocery, hotel,
manufacturing, medical/pharmaceutical, media, mining, property management, retail, telecommunications,
transportation, and waste management.
3
The initial adjudication of labor disputes pursuant to the NLRA is performed by an ALJ in unfair labor practice claims
(which make up about 85% of overall cases) and a regional director or hearing officer in disputes related to
representation petitions. More often than not, the Board tends to defer to the factual findings and legal judgments of
both (Taratoot 2013).
4
Financial disclosure forms from recent years for executive branch nominations and appointments are accessible by
submitting OGE Form 201 at http://www.oge.gov/Open-Government/Access-Records/Current-Executive-Branch-
Nominations-and-Appointments.

20
pages. I then transcribed and coded each Member’s assets (including the type of investment, their
valuation, and the economic sector of the stocks owned), and created aggregate measures of their
financial holdings (including but not limited to total wealth, total stock ownership, and total stock
ownership by industry). These two sets of information – detailing the circumstances and outcome of
NLRB disputes, and Members’ asset allocation – represent the core components of the data used in
the subsequent analysis of NLRB decision-making. Data regarding NLRB Members’ personal
investments appear in Table 2, and summary statistics for the variables employed in my empirical
analysis are presented in Table 3.
[ TABLES 2 & 3 ABOUT HERE ]
The unit of analysis is Board Member-Case, and the dependent variable is the Vote in the NLRB
Dispute (coded 0 for a pro-labor vote, 1 for a pro-management vote). This dependent variable coding
has been used in studies of the effect of partisanship on NLRB outcomes (e.g., Moe 1985). The
independent variable of interest is the Member’s Personal Financial Interest in the outcome, measured as
the total amount of stock owned by the Board Member during that year in the industry that the
management/employer disputant operates in (measured in hundreds of thousands of dollars).
5
The
precedent creation hypotheses predicts that larger values of Personal Financial Interest will make a pro-
management vote more likely, while the competitor punishment hypothesis predicts that larger values
of Personal Financial Interest will make a pro-labor vote more likely. In the language of an experiment,
this is the treatment variable, as each member is randomly assigned to a case. Of all NLRB Members
who could be assigned to a case, there is random assignment of those Members’ financial holdings.
While stock holdings generally are not randomly assigned, as we are limited to what the Members’
holdings already were among the universe of all Members on the Board, the gains on identification

5
The possible economic sectors are those listed when describing the construction of the independent variable of interest
in footnote 1.

21
are still much greater than had I analyzed a different agency or board where there is no random
assignment of agents to decisions.
The other independent variables are intended to account for the political, financial, and
administrative circumstances that might bear on NLRB Members’ decision-making in labor disputes.
6

Because research has demonstrated that Board Members appointed by Democratic presidents tend to
favor labor while Members appointed by Republican presidents tend to favor management, I include
the independent variable Party (coded 0 for Democrat, 1 for Republican). In order to account for the
possibility that wealthier Members in general tend to favor management disputants over labor because
of a pro-business bias, I include an independent variable measuring the Total Wealth of the Member
for the year (measured in hundreds of thousands of dollars). Last, the independent variable
Administrative Law Judge (ALJ) Decision (coded 0 for a pro-labor holding, 1 for a pro-management
holding) controls for the suggestion from both scholarly literature and anecdotal evidence that Board
Members exhibit substantial deference to the underlying judgments by administrative law judges (or
regional directors or hearing officers).

Results: NLRB Members Engage in Competitor Punishment
Table 4 displays the results of the model that estimates the likelihood of NLRB Members voting for
either labor or management disputants based on the Members’ personal financial interest in the
disputants’ industries. The results of the model confirm the expectations associated with the
competitor punishment hypothesis regarding the role of Board Members’ personal financial interests
in their adjudicatory decision-making. The findings in Table 4 indicate that all else equal, the more
stock an NLRB Member owns in a given economic sector, the less likely that Member is to vote in

6
These additional independent variables are needed as prior literature has demonstrated their importance. I also need to
include Party of the Member in case financial holdings are correlated with party.

22
favor of management disputants from that sector in cases that reach the Board. The research design
with random assignment of Members to cases allows for a more direct causal test of the effect of
financial holdings on bureaucratic decisions than would be possible in other bureaucratic settings.
[ TABLE 4 ABOUT HERE ]
This result follows from the logic of the competitor punishment hypothesis, and suggests that
Board Members ruling on industrial disputes apply a strategic calculus to their adjudicatory decisions
by considering the industry of management disputants relative to their own asset allocation. Instead
of Members being more favorably disposed to management or employer disputants from economic
sectors in which those Members are more heavily invested, as advanced in the precedent creation
hypothesis, Board Members systematically vote against management disputants given increased
private financial exposure to the economic sector in which those employers operate. Among the most
plausible explanations for why Members would choose this strategy to advance their personal financial
interests by their adjudicatory decisions rather than attempting to create precedent favorable to those
economic sectors in which they are most heavily invested is that the substantive law applied by the
Board does not lend itself to the establishment of industry- or sector-specific precedent. The existence
of consistent sets of factual and legal circumstances that are unique to a given industry or economic
sector is a necessary condition for precedent creation to be an effective means to advance Members’
sector-level private financial interests. It seems, however, that the relatively narrow class of disputes
that the Board is statutorily permitted to resolve – i.e., those related to the rights of private-sector
employees to organize and collectively bargain – does not give rise to circumstances that are
consistently unique to one economic sector or the other. As a result, precedent creation proves a
suboptimal strategy for the promotion of industry-level interests.
The expected difference in Board Members’ likelihood of supporting labor versus
management disputants given increasing levels of personal financial interest is presented in Figure 1.

23
The figure indicates that all else equal, the probability of a Board Member voting against a management
disputant decreases from just over 20 percent, if a Member has zero equity investments in the
economic sector in which the management disputant operates, to under 4%, if the Member has
$1,000,000 invested in equities from that sector.
This evidence suggests that Board Members with substantial holdings in a firm or firms that
is a competitor to a firm before the NLRB actively punish that firm by deciding against the competitor.
Some NLRB decisions result in severe penalties and fines that have in the past caused some firms to
go bankrupt or to face severe capital restrictions for a period of time. These negative NLRB decisions
by Board Members against firms competing with industries in which they have substantial monetary
holdings help competitor firms by increasing market share and decreasing competition. Thus, the
Board Members’ short-term financial interests are boosted by these negative decisions punishing
competitors.
[ FIGURE 1 ABOUT HERE ]
The results in Table 4 also indicate, as expected and as previously demonstrated, that
Democratic Board Members show a pronounced tendency to favor labor disputants, while Republican
Board Members are significantly more likely to vote on the side of management. Likewise, Board
Members tend to defer to the underlying decisions of administrative law judges, regional directors,
and hearing officers, regardless whether the preceding outcome favored labor or management.
The results in Table 4 are robust to an important alternative specification. As presented in the
text, the results in Table 1 are based on a logistic regression model that analyzes all industrial relations
disputes coming before the NLRB from 2011 through 2014 (i.e., both unfair labor practice and union
representation claims). Some prior research, however, has limited the empirical analysis of decision-
making on the Board to Members’ votes in unfair labor practice claims alone due to the notion that
the ideological preference for labor or management is more clear-cut in such disputes as compared to

24
the more doctrinally obscure representation petitions (see, e.g., Bodah and Schneider 2012). The
results of an additional logistic regression model with the same dependent and independent variables
but with the sample restricted to unfair labor practice disputes are presented in Table A1 in the
Appendix, and the original findings from Table 4 are robust to the exclusion of representation
disputes. Additionally, as is evident from the predicted probabilities of supporting management
disputants given varying levels of personal financial interests presented in Figure 1, the results
indirectly underscore the common claim that the NLRB is a fundamentally pro-labor institution, as
management disputants prevailed in only about a quarter of the disputes that reached the Board during
the time period in question. Further, given the established partisan tendencies of Democratic and
Republican Board Members to support labor and management disputants, respectively, the
preponderantly pro-labor outcomes at the NLRB from 2011-2014 are likely also attributable to the
exclusive incidence of Democratic-majority Boards during the period under consideration.

Discussion and Conclusion
I theorized that bureaucrats – especially political appointees – are likely to consider their own personal
financial interests when making policy decisions. In addition to the influence of political control and
their own policy preferences, their financial interests can shape and influence bureaucratic decision-
making. In the case of the NLRB, Board Members were more likely to vote against a firm in which
the Member held substantial dollar amounts of stock in competitor firms in the same sectors. This
implies that Board Members’ personal financial interests drove decisions to go against management
when such a decision harmed a competitor firm. Such a decision with significant punishments to the
firm is likely to help the competitor firms, thus having the potential to increase the competitor firms’
stock prices – and thus the NLRB Members’ bottom lines.

25
The findings also suggest several potential avenues for future inquiry that take into account
public officials’ private financial interests. First, and more narrowly, additional consideration of
decision-making at the NLRB itself may be instructive in more precisely identifying the circumstances
in which Board Members vote based on their personal asset allocation, as well as more clearly
understanding why Members’ evidently self-regarding choices manifest in competitor punishment as
opposed to precedent creation.
7
Future research of this type could incorporate additional measures
and conceptions of what it means for an NLRB Member to vote either “for labor” or “for
management” by contemplating the complicated remedial framework of the National Labor Relations
Act (NLRA). It seems possible that not all punishments are created equal, and that the binary
conception of pro-labor and pro-management rulings compresses important gradations in both the
type and severity of NLRA remedies. In other words, in addition to the results presented here, Board
Members may also choose to apply remedial sanctions differentially in magnitude across economic
sectors based on their own personal investments.
Second, my future work will take seriously the considerable degree of institutional variation
across agencies in the American federal bureaucracy in order to begin developing what may eventually
become a unified theory of the conditions under which administrative officials make decisions based
on their personal financial interests. It may be that certain agencies and types of agencies enable
bureaucrats to more easily “feather the nest,” while others erect more substantial institutional
constraints on the exercise of private financial interests in administrative decision-making. Potential
axes of differentiation across the bureaucracy include but are not limited to the nature of the agency’s

7
Ideally, additional investigation into the role of private financial interests in decision-making at the NLRB would also
include greater longitudinal variation, particularly to control for changes in the nature of external political influence on
the Board; unfortunately, however, the Office of Government Ethics General Records Schedule 2.8 item 2 demands that
executive officials’ personal financial disclosure forms be destroyed six years after their submission unless the forms are
necessary for an ongoing investigation, so further historical inquiry into these questions will encounter practical
limitations.

26
substantive mission, the scope of the agency’s regulatory or adjudicatory authority, and the agency’s
relative independence from external political influences. Future research must confront not only
whether certain classes of agencies tend to institutionally constrain decision-making based on personal
financial interests, but also whether some agencies or types of agencies might attract individuals who
are more apt than others to make policy decisions based on their private investments. Addressing such
questions should contribute to the development of a fully specified theory of administrative decision-
making related to bureaucrats’ personal finances that accounts for institutional diversity as well as
other behavioral tendencies and characteristics of administrative agents.
The results presented here emphasize the importance of carefully analyzing the political and
legal environment of bureaucratic decision-making in order to supplement the conventional wisdom
regarding the determinants of administrative choices. As a result of the attenuated connection between
the federal bureaucracy and electoral politics on the one hand, and the American bureaucracy’s
comparatively politicized nature on the other, prior scholarly consideration of decision-making in
American public administration has been (perhaps justifiably) preoccupied with the possibility that
administrative actors are furthering a political or ideological agenda. That claim’s importance
notwithstanding, this study represents an attempt to broaden the analytic scope as regards how and
why bureaucrats make decisions on crucial matters of public policy. The finding that public officials
in the federal bureaucracy decide industrial relations disputes in a way that may be intended to put the
marketplace rivals of those firms in which the bureaucrats are most invested at a competitive
disadvantage suggests a need to critically reconsider both the nature of bureaucratic neutrality and the
scope of bureaucratic discretion in a system of government where administrative agencies wield an
expansive amount of political power.

27

Table 1: Randomization Test – Randomization of Assignment to Disputes on NLRB

Covariates

Percent of NLRB
Membership
(Expected Assignment to
Disputes)

Percent of NLRB
Members Assigned
(Actual Assignment to
Disputes)

Difference of Means Test
(p-value)
Democrat 60% 67.0% 0.756
Female 20% 21.2% 0.953

Table 2: NLRB Members’ Investments by Year, 2011-2014

Year Total wealth (mean) Member with highest reported aggregate wealth
2011 $3.21 million Becker ($5.41 million)
2012 $1.56 million Becker ($5.41 million)
2013 $1.11 million Johnson ($7.74 million)
2014 $3.40 million Johnson ($10.01 million)

Table 3: Descriptive Statistics

Variable µ σ min. max.
Vote in NLRB Dispute (1=NLRB member votes for
management)
0.19 0.40 0 1
Personal Financial Interest 0.22 0.92 0 22.5
Total Wealth 25.84 23.90 5.76 100.57
Party 0.26 0.44 0 1
ALJ Decision (1=ALJ decision was pro-management) 0.27 0.44 0 1

28

Table 4: Personal Financial Interests and Decision-making at the NLRB

Dependent Variable: Vote in the NLRB Dispute (0 - pro-labor; 1- pro-management)

Independent Variables

Coefficient (Robust standard error)

Personal Financial Interest -0.126 (0.057)**
Total Wealth 0.003 (0.003)
Party 1.823 (0.170)***
ALJ Decision 1.856 (0.136)***
Constant -4.241 (0.226)
χ
2
284.64
N 1757
**p < 0.01; *p < 0.05 (one-tailed tests for all except Personal Financial Interest).

29

30
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Appendix
On page 24 of the text, I indicate that I estimate a different version of the logistic regression model
from the paper where the sample is restricted to only unfair labor practice disputes decided by the
National Labor Relations Board from 2011-2014. The dependent variable and independent variables
all remain exactly the same. The results of a logistic regression model where the sample is restricted
to unfair labor practice claims are presented in the following Table (A1). The results remain
substantially the same as the model included in the paper, where the sample includes both unfair labor
practice claims as well as representation election disputes.

Table A1

Personal Financial Interests and Decision-making at the NLRB, 2011-2014

(Unfair labor practice disputes only)

Dependent Variable: Vote in the NLRB Dispute (0 - pro-labor; 1 - pro-management)

Independent Variables
Model A1: Unfair labor practice disputes only

Coefficient (Standard Error)
Personal Financial Interest -0.148 (0.090)*
Total Wealth 0.004 (0.004)
Party 1.814 (0.208)***
ALJ Decision 1.880 (0.171)***
Constant -4.360 (0.289)
Pseudo-R
2
0.598
N 1153
***p < 0.01; **p < 0.05; *p < 0.10 (one-tailed tests for all except Personal Financial Interest).

33
CHAPTER 3

Separated Institutions Sharing Interests: Interbranch
Trust and Investment-Oriented Judicial Deference
To Administrative Policy Choices

Jordan Carr Peterson

Abstract: Under what conditions do judges defer to policy choices by administrative agents? Is judicial deference
to administrative decisions conditional on the similarity of investments between judges and bureaucrats? The
separation of powers framework gives courts the power to determine the scope of other political institutions’
policy-making authority, and thus to endorse or reject those institutions’ policy decisions. This represents a
complex scenario in which public officials might act to further their own private financial interests. I theorize
judges will consider whether and the extent to which their personal investments coincide with those of
bureaucrats leading the agency whose decision is subject to review because they are more likely to trust the
policy judgments of administrative officials who more closely share their personal financial interests. While
ideology explains many judicial preferences, emerging research suggests judges also make choices based on their
personal finances. Here I posit an explanation for judicial deference to administrative choices based on judges’
and bureaucrats’ private investments: I argue judges are more likely to accept or defer to administrative
judgments when investment congruence between judges and bureaucrats is high, i.e., when judges and
bureaucrats hold greater amounts in common of assets whose value will likely be affected by regulation and
litigation. My empirical analysis involves an examination of cases from 2012-2015 in which judges from the
D.C. Circuit Court of Appeals reviewed actions by federal administrative agencies; I find that judges indeed
consider inter-institutional asset congruence when reviewing agency actions. This study has significant
normative implications for our understanding of a government whose functions are performed by separated
institutions sharing powers because of the prevailing tendency for the scope of administrative authority to be
judicially constructed.

34
The American Constitution divides the national government’s powers and obligations across multiple
branches. By fragmenting public authority in this way, which vests various components of federal
power in different institutions and contingently grants certain institutions influence over others, the
constitutional framework engenders complicated questions about the politics of inter-institutional
control. As one of the most prominent mechanisms of control flowing from the Constitution, and
due to a long tradition of deference to agency policy choices, judicial review of administrative actions
proves especially fertile ground for considering the scope and nature of interbranch influence.
Among the theoretical bases for the constitutional separation of powers was a deep skepticism
in the Framers’ assumptions about human nature and the dangers of unimpeded ambition (Federalist
No. 51). Subsequent developments in American law and public policy have been grounded in
consonant concerns about the propriety of public officials’ motivations for their conduct. These
developments include the enactment of legislation governing conflicts of interest in the judiciary, as
well as the establishment of ethics offices within Congress and the executive branch. Despite
increasing awareness of most federal officials’ vast personal wealth, the operation of many rules
prohibiting self-dealing is not always a robust constraint on judicial behavior (Barr and Willging 1993).
Most ethical requirements rely heavily on voluntary compliance, and public interest tends to mount in
only egregious instances of corruption. As such, many public officials operate in areas of ethical
uncertainty (Tillman 2015). This uncertainty forms the basis for a developing body of research that
concerns whether and how the personal investments of public officials might motivate their policy
choices (Griffin and Anewalt-Remsburg 2013; Peterson and Grose 2015; Welch and Peters 1983).
This project considers how the dynamics of the institutional separation of powers in the
federal government are shaped by the tendency of public officials to make policy choices that are
associated with their own personal financial interests. Specifically, is judicial deference to
administrative policy choices conditional on congruence of personal financial interests between judges

35
and bureaucrats? And how are judges’ choices in cases involving agency litigants and whose outcome
impacts business interests associated with the judges’ underlying personal investments?
I theorize that judges consider both their own personal financial interests as well as the
personal financial interests of bureaucrats responsible for policy choices subject to judicial review. I
argue that judges are more likely to defer to decisions made by administrative agents when there are
higher levels of congruence between the judges’ and bureaucrats’ personal financial interests due to
increased trust in agency judgments when bureaucrats have a similar profile of personal investments
to judges. In this article, I test my argument’s claims by examining all cases from 2012 until 2015 in
which the District of Columbia Circuit Court of Appeals reviewed actions by federal administrative
agencies. I consider the relationship between the D.C. Circuit judges’ votes in these legal disputes and
the judges’ and relevant federal administrators’ personal investments. No scholar has yet examined
whether judicial deference to administrative judgments is explained by the congruence between judges’
and administrators’ personal financial interests or holdings, and recent work has only begun to
consider whether appellate judges’ votes in business litigation are associated with their personal
financial interests, and that work has been limited to the Supreme Court (Peterson et al. 2017). I
examine cases involving federal agencies heard by the District of Columbia Circuit because it is the
court in which the overwhelming majority of federal appellate administrative litigation takes place
(Roberts 2006).
I find that judges on the District of Columbia Circuit Court are more likely to defer to
administrative policy judgments given greater levels of congruence between the judges’ and
bureaucrats’ personal investments. D.C. Circuit judges are more likely to defer to administrative
choices both (1) when judges and relevant bureaucrats hold similar amounts of personal investments
in the industries impacted by agency policy; and (2) when judges and relevant bureaucrats hold similar
amounts of personal investments in equities. These results are surprising when we consider traditional

36
notions of judicial deference to administrative policymaking because they suggest that judges’
decision-making in administrative litigation is affected by personal financial interests judges share with
federal bureaucrats. The results also suggest more generally that judges decide cases in a way intended
to enhance, or at least to not diminish the value of their own personal investments.

Judicial Deference to Administrative Policy Judgments
Substantial discretion is granted to administrative agencies because of their substantive specialization
in policy-making, and assumes a degree of political neutrality in bureaucratic policy judgments. While
judicial review of administrative policy exemplifies the constitutional separation of powers, the
doctrine of judicial deference to administrative judgments is grounded in the notion that even agency
decisions subject to judicial interference “constitute a body of experience and informed judgment to
which courts and litigants may properly resort for guidance.” (Skidmore v. Swift & Co., 1944). It follows,
then, that the majority of agency decisions are subjected to less searching review by courts than are
most other questions of substantive law. This gives agencies broad latitude in taking action to
accomplish their statutory purposes, and creates a reasonably streamlined process for courts reviewing
administrative decisions.
Although judicial deference to administrative policy represents the general watchword when
courts review challenges to agency decisions, there exist constraints on the scope of such deference.
Courts defer to administrative judgments for legal reasons such as the importance of the standards of
review outlined in the Administrative Procedure Act (Robinson 1991) and agencies’ relative adherence
to various procedural demands (Crowley 1987; Sheehan 1990). There are also political determinants,
such as judges’ agreement with the agency’s substantive policymaking (Canon and Giles 1972; Spaeth
and Teger 1982). Likewise, scholars have pointed to congruence of preferences among actors across
institutions as an explanation for changes in mechanisms of interbranch oversight and delegation

37
(Bertelli and Grose 2011; Epstein and O’Halloran 1994; McCann 2016). Here, by contrast, I contend
that the deferential approach to judicial review employed by judges considering challenges to
administrative actions is also associated with the level of congruence between judges’ and bureaucrats’
personal financial interests.

Interbranch Investment Congruence and Judicial Evaluations of Agency Decisions
While courts profess deference to administrative judgments, the separation of powers framework –
particularly the difficulties that attend the elected branches in directing the contours of judicial review
– also affords courts themselves a significant level of discretion in accepting or rejecting administrative
policy. A considerable amount of federal policy is now determined by administrative agencies, which,
in the words of Chief Justice John Roberts, “now wield vast power and touch almost every aspect of
daily life” (Free Enterprise Fund v. Public Company Accountability Oversight Board, 2010). Since judges are
armed with the constitutional authority to expand or constrain the scope of agency discretion, many
aspects of public policy and agency decision-making are potentially subject to judicial review. A
nascent body of research suggests that many public officials’ policy choices are driven by their personal
economic background (Carnes 2014) or personal finances (Peterson and Grose 2016). Thus far,
existing research has considered whether public officials make policy decisions whose outcomes are
associated with the distribution of their personal assets. Here, in contending that judges defer to
administrative policies when they anticipate doing so will enhance or protect the value of their personal
assets, I argue that the separation of powers provides a different manner in which judges’ private
finances impact their decision-making in administrative litigation.
Whereas earlier theories have offered inter-institutional congruence of policy preferences as
an explanation for judicial acceptance or rejection of administrative choices, I argue that judicial
deference to administrative decisions is influenced by the congruence of personal financial interests

38
between judges reviewing administrative policy and the bureaucrats responsible for the policies subject
to review. Judges, acting on the belief that public officials in administrative agencies who share similar
personal financial interests to their own are more apt to make policy decisions that materially enhance
or protect those interests, are more likely to vote to uphold administrative decisions by agency officials
whose personal investments more closely resemble their own.
While decisions made by both carry political and economic import, unlike bureaucrats, judges
are policy generalists who in the main are no more than intermittently conversant in the sorts of
technical and scientific details employed to design and implement agency policy (Caudill 2007;
McGarity 2005). As opposed to litigation in which the perceived primary dimension of conflict is
typically over social and cultural issues rather than economic – e.g., rights-oriented social disputes
involving bans on same-sex marriage, voter suppression, or the breadth of access to reproductive
health services – judges making decisions in cases challenging highly technical administrative
regulations or procedures who are also concerned about their own personal finances likely need to
consult a different heuristic instrument than ideology alone. Instead, judges are expected to consider
the asset allocation choices made by bureaucrats in charge of developing, implementing, and
administering agency policies subject to judicial review. As long as bureaucrats in charge of
administrative policy-making take their own personal financial interests into consideration as well
(Peterson 2016), economically rational judges can safely assume that decisions made by bureaucrats
with personal investment profiles similar to their own will protect the value of their personal assets.
This manifestation of inter-institutional trust reflects an instance of judicial deference to
administrative judgment that looks rather unlike traditional justifications for courts respecting agency
discretion. Instead of judges deferring to administrative decisions because of bureaucrats’ technical
expertise or years of specialized experience regarding the policy decision subject to review, judges are
expected to accept more readily administrative judgments by agency officials whose personal finances

39
include an investment profile more similar to their own. In particular, the theory suggests that judges
will endorse administrative policies originating in agencies headed by bureaucrats with investments
resembling theirs because the answers to legal questions at issue in administrative litigation so
frequently have clear economic ramifications for specific sectors of the economy. For instance,
regulatory standards promulgated by the Environmental Protection Agency or workplace rules issued
by the Occupational Safety and Health Administration present the likelihood of a direct, substantial
impact on large portions of the economy. Like most other political elites, judges – and particularly
federal judges – tend to possess significant personal wealth
8
; as a result, the stakes are high not only
professionally but also personally for judges making adjudicatory choices in litigation that has the
potential to impact both the economy broadly as well as their investments individually. Likewise, and
because not all regulatory interventions impact the value of securities and investments negatively
(Angelo 2010; Berk and Rauch 2016; Vieth et al. 1997), this model of investment-oriented judicial
deference to agency policies qualifies the more simplistic notion that a judge with significant industry
assets would reflexively oppose regulatory interference in that industry’s organizational practices.
As such, if judges are rational economic actors who all else equal seek to maximize the value
of their own personal investments just as regular investors would, but are also cognizant of the
limitations on their own technical expertise as regards administrative policy-making, they are expected
to defer to agency policies when their own investment portfolio more closely matches the investment
profile of relevant administrative officials. In sum: the closer the distribution of a judge’s personal
assets to those of the bureaucrat in charge of the agency whose policy is subject to judicial review, the
more likely a bureaucrat’s assessment of whether their agency’s policy negatively impacts their own
personal investments will extend to the policy’s impact on the judge’s personal finances as well. Judges’

8
For instance, among the sample of judges considered in this paper’s empirical analysis (judges on the District of
Columbia Circuit Court of Appeals from 2012 to 2015), the mean total wealth was at least $2.7 million. For justices on
the Supreme Court, the mean total wealth from 2006 to 2013 was $5.3 million (Peterson et al. 2017).

40
perceptions of commonly-configured personal investments should result in increased deference to
administrative policy decisions.

Expectations for Investment-Oriented Judicial Deference
I identify two primary observable implications of judicial deference to agency judgments stemming
from congruence of personal financial interests between judges and bureaucrats. These implications
arise from judges’ anticipated perceptions of investment congruence, and inform my expectations
regarding their subsequent behavior in administrative litigation. First, a judge’s perception of
congruence between their own assets and the assets of a bureaucrat whose policy is being reviewed
might be founded on a perception that both judge and bureaucrat share a common financial interest
in the success of an industry or economic sector whose operations are most directly affected by the
regulatory policy subject to judicial review. Second, the judge might employ a somewhat less precise
reading of inter-institutional investment congruence, and make choices about whether they defer to
agency policy based on the extent to which bureaucrats responsible for the policy under review have
distributed their assets in a manner similar to the judge more generally.
Judges are expected to defer to agencies more frequently if the judges’ personal assets include
a similar level of investment in the industry or economic sector subject to regulation or adjudication
via the agency decision being litigated. While administrative policy choices may be quite far-reaching
as regards the scope of their application (Lowi 1969), in many cases the agency whose decision is being
reviewed by courts issues rules and regulations that exclusively or primarily impact organizational
practices in one industry or small cluster of industries. In addition to the prominence and specificity
of most agencies’ organizational missions, industry-specific regulations and administrative policies are
also known to dramatically impact the stock value of firms in that industry (de Rezende et al. 2015;
Mazzocchi et al. 2009; Veld-Merkoulova and Viteva 2016). Judges and bureaucrats alike are considered

41
to be more personally exposed to the consequences of variation in the value of an asset or group of
assets if they own greater amount of stocks in firms from an industry or sector subject to
administrative regulation and sector-specific mutual funds from that sector. Provided judges are aware
of the degree to which a bureaucrat responsible for agency policy is personally exposed to the success
or failure of firms in an affected industry, judges are expected to defer to agency decisions impacting
the business practices of that industry or sector more frequently if judges and bureaucrats own greater
amounts of equities from firms operating in that industry or sector in common. This motivates the
industry investment congruence hypothesis:
Industry Investment Congruence Hypothesis: The greater the
congruence between the value of a judge’s personal investments in a certain
industry or economic sector and the value of personal investments in the same
industry or sector by a bureaucrat whose policy choice is being reviewed by
that judge, the more likely the judge will defer to the bureaucrat’s policy
choice.

In addition to the possibility that judges defer more frequently to agency policy decisions when
judges and relevant administrative officials hold larger amounts of assets in common from firms
operating in the industry or sector subject to regulatory interference, investment-oriented judicial
deference to administrative policy may originate in less narrow but equally important evaluations
regarding the distribution of the relevant bureaucrats’ personal assets. More specifically, judges are
expected to defer to administrative policy choices more frequently when judges and bureaucrats
responsible for policies subject to judicial review hold greater amounts of equity assets in general in
common.
Judges reviewing administrative actions are more likely to defer to agency decisions given
increased congruence between judges’ and bureaucrats’ respective equity investments for several
reasons. Judges whose portfolios include amounts of equity investments more congruous with those
of administrative officials responsible for promulgating the policy being reviewed are more likely to
defer to administrative judgments because they will assume that bureaucrats with a similar approach

42
to asset allocation have their best financial interests in mind as well. For instance, a higher amount of
personal wealth invested in equities – including individual stocks, mutual funds, and certain retirement
accounts – indicates a relatively volatile portfolio whose valuation is more subject to market
fluctuations versus one that involves assets of more stable worth. A judge with significant personal
equity holdings, whose portfolio is more susceptible to instability in value due to regulation-induced
market forces, is likely – subject to other professional and political constraints – to trust the judgment
of a bureaucrat with a comparable amount of personal equity investments to make regulatory or
adjudicative decisions that either enhance or do not diminish the value of these equity assets.
Judges reviewing administrative policies are further expected to defer to agency judgments
given greater levels of congruence between judges’ and bureaucrats’ exposure to equity investments
due to extensive integration across both financial markets and economic sectors. Administrative rules
and regulations from a single agency can result in considerable radiating effects on equities markets at
large (Christensen et al. 2016) or even for the value of equities and commodities from industries in
addition to that primarily regulated as per the agency’s core mission (Busse and Keohane 2007), rather
than solely for stocks or funds from the particular industry or sector an agency is charged with
regulating. Consequently, judges evaluating agency policy choices may base their level of inter-
institutional trust vis-à-vis the agency in their perception of the extent to which the relevant
bureaucrats have personally extended themselves in equities markets in general.
It is also possible that judges will defer to administrative policies based on higher levels of
interbranch equity investment congruence because there are comparatively low information costs
associated with gauging bureaucrats’ personal equities wealth. While I ultimately contend that judges
are appropriately aware of administrators’ personal finances to recognize interbranch congruence
between both personal investments in specific industries as well as personal equity investments, it is
particularly likely that judges are aware of the degree to which bureaucrats responsible for agency

43
policies are invested in equities markets, because such personal investments are a readily ascertainable
summary measure of their wealth. These factors together lead to the equity investment congruence hypothesis:
Equity Investment Congruence Hypothesis: The greater the congruence
between the value of a judge’s personal investments in equities and the value
of equity investments by a bureaucrat whose policy choice is being reviewed
by that judge, the more likely the judge will defer to the bureaucrat’s policy
choice.

Though superficially the possibility that judges take into account interbranch investment
congruence during administrative litigation may seem improbable, my theory suggests that judges are
expected to be sufficiently knowledgeable regarding the personal investments of federal bureaucrats
to plausibly make decisions about whether to defer to agency policy based on the level of congruence
between the officials’ assets. Particularly in recent years, there is reasonably high awareness even
among the public regarding federal bureaucrats’ finances. Because of their high rank within the
executive branch, the administrative officials whose decisions are studied in this article have all been
nominated by the President and confirmed by the Senate, during which process they were required to
submit a mandatory pre-confirmation disclosure form indicating information about their personal
investments to the Office of Government Ethics. During the last several presidential administrations,
executive branch nominees’ personal finances have been subjected to searching inquiry by Senators,
the news media, and the public alike, and this tendency to scrutinize potential bureaucrats’ personal
investments is not limited to nominees from one political party or the other. For example, while special
attention has been paid to several executive branch nominees from the Trump administration due to
their tremendous personal wealth (Lee 2016), public officials and journalists alike took note of the
personal fortune and investments of Barack Obama’s second Secretary of Commerce, Hyatt Hotels
heiress Penny Pritzker (Wingfield 2013). As such, because judges are political elites, and because elites
are typically better informed about the details of current affairs than the populace in general (Delli
Carpini and Keeter 1996), judges reviewing agency policies in court are expected to have sufficient

44
knowledge of relevant bureaucrats’ personal investments such that they can form credible perceptions
regarding inter-institutional congruence of personal financial interests that undergird their investment-
oriented deference to agency judgments.

Data and Methods
In order to test my theory of investment-oriented judicial deference to administrative policy choices,
I estimate a logistic regression model. In order to construct the dependent variable and key
independent variables, I created an original dataset for which I collected information regarding all the
cases between 2012 and 2015 in which the District of Columbia Circuit Court of Appeals reviewed
decisions by an administrative agency (274 cases in total). This original dataset includes the case
outcomes (whether the Court as a whole affirmed or rejected the agency’s arguments), whether the
case reached the D.C. Circuit from an agency directly or whether it was first heard by the District of
Columbia District Court, the industry affected by the administrative policy in question, and the initial
disposition of the case (whether the initial review by an agency or the lower court affirmed or rejected
the administrators’ arguments). Data regarding the financial holdings of D.C. Circuit judges appear in
Table 1, and summary statistics for all data employed in my empirical analysis appear in Table 2.
[ TABLES 1 & 2 ABOUT HERE ]
Next, I gathered the financial disclosure documents filed by all administrative officials in
charge of agencies whose policies were reviewed by the D.C. Circuit during the time period covered
in this article by submitting online OGE Form 201 to the Office of Government Ethics
9
for each
official. This amounted to over 260 forms containing over 10,000 individual assets, as several agencies
are governed by multi-member commissions, and since most agencies had decisions reviewed in more

9
Financial disclosure forms from recent years for executive branch nominees and appointments are accessible online
through the Office of Government Ethics website by submitting Form 201 at
https://extapps2.oge.gov/201/Presiden.nsf/f54fd322068f23a385257fc40006f88e?OpenForm.

45
than one year, and I collected disclosure forms for all years in which an agency’s policies were
challenged in the D.C. Circuit, for all members of each commission,. I then gathered the financial
disclosure documents for the eighteen judges on the District of Columbia Circuit submitted to the
Administrative Office of the United States Courts from 2012-2014.
10
I then transcribed and coded
each judge and bureaucrat’s assets (including the type of investment, value, and economic sector for
stocks and applicable mutual funds
11
), and used this to create aggregate measures of both judges’ and
bureaucrats’ personal investments (including but not limited to total wealth, total wealth in equities,
and total equity ownership by industry).
12
These data could also be used in order to construct my key
independent variables regarding congruence between public officials’ personal investments. These
three sets of information – regarding the disposition of D.C. Circuit administrative litigation, and both
judges’ and relevant bureaucrats’ personal wealth and financial interests – represent the bulk of the
data employed in my empirical analysis of investment-oriented judicial deference to administrative
policy choices.
The unit of analysis is the Judge-Case, and the dependent variable is the judge’s Vote in
Administrative Litigation (coded 1 if they vote in favor of an administrative agency litigant, and 0
otherwise). The independent variables of interest – intended to measure the levels of congruence
between judges’ and bureaucrats’ personal investments as presented in the industry investment and
equity investment congruence hypotheses – are Judge-Agency Industry Investment Congruence and Judge-
Agency Equity Investment Congruence. Judge-Agency Industry Investment Congruence is calculated by taking the

10
The AOUSC, responsible for collecting and managing federal judges’ personal financial disclosures, makes it
significantly more difficult to collect these data than either the legislative or executive branch of the federal government.
Requests for judges’ financial disclosure documents covering calendar year 2015 – generally filed in Summer 2016 – have
not yet been fulfilled. Many thanks to Zoe Tillman for providing D.C. Circuit judges’ personal financial disclosures
forms from 2014.
11
The industries and sectors coded were aerospace, agriculture, automotive, construction, education, energy, finance,
food, hospitality, manufacturing, media, medical, real estate, telecommunications, tobacco, and transportation.
12
Because the 2015 financial disclosure forms for the judges were not available at the time this article was written, I have
imputed judges’ 2014 finances for cases heard in 2015.

46
absolute value of the difference between judges’ and bureaucrats’ respective personal investments in
the industry or economic sector affected by the administrative policy subject to judicial review
(measured in hundreds of thousands of dollars). Judge-Agency Equity Investment Congruence is calculated
by taking the absolute value of the difference between judges’ and bureaucrats’ respective personal
investments in equities (stocks, mutual funds, and certain retirement accounts; also measured in
hundreds of thousands of dollars).
13
For more intuitive interpretation of the results as presented
subsequently, both values were then multiplied by -1 (since according to my hypotheses lower levels
of both congruence measures indicate a greater likelihood of judicial deference to agency judgments
before taking the inverse of the measures).
The other independent variables are intended to account for the political, administrative, and
economic factors that might lead judges to defer to agency policy choices. Because the executives in
charge of all federal agencies during the sample in question were all appointed by Barack Obama (or
were multi-member commissions with a majority of Obama appointees), and because D.C. Circuit
judges are more likely to support administrative policies issued by agency executives from the party of
the president who appointed them (Banks 1999), I include a variable measuring the Judge’s Party (coded
1 if the judge was appointed by a Democratic president, and 0 if the judge was appointed by a
Republican president).
Further, I include variables related to earlier stages of the administrative litigation under
consideration. Due to the longstanding doctrine of judicial deference to administrative decisions
(Caruson and Bitzer 2004), I include a variable for whether there was a Pro-Agency Outcome Below (coded
1 if the outcome in the underlying proceedings was decided in favor of the administrative agency, and

13
A number of cases involved legal challenges to administrative decisions by agencies where the executive was a multi-
member commission rather than a single administrator. For such cases, all commissioners’ financial information was still
collected, coded, and aggregated, but the agency’s level of investment was coded as the commission median value
(whether for industry investment, equity investment, etc.).

47
0 otherwise). There are a number of agency decisions that can be construed as pro-business, for
instance, when the Environmental Protection Agency is sued by an environmentalist group such as
the Sierra Club. Since judges, as personally wealthy elites, might support pro-business agency
decisions, I include a variable for whether there was a Pro-Business Agency Decision motivating the
litigation (coded 1 if the agency decision was pro-business, and 0 otherwise). Likewise, roughly three-
quarters of the cases in the sample arrived at the D.C. Circuit directly from the agencies themselves,
while the other quarter were appealed up from the D.C. District Court. To control for the possibility
that D.C. Circuit judges tend to favor choices by either agencies or District Court judges, I include a
variable for whether the Circuit Court heard an Appeal from an Agency (coded 1 if the decision
immediately preceding the appeal was made at the agency level, and 0 if the decision immediately
preceding the appeal was made by the D.C. District Court).
Last, I include three additional variables related to judges’ personal finances in order to account
for the possibility that judges’ finances (in addition to inter-institutional investment congruence)
impact their decisions in administrative litigation. Because judges who are personally richer or who
are more invested in equities markets in general may tend to either favor or disfavor regulatory choices
by agencies, I include variables representing the Judge’s Total Wealth and the Judge’s Equities Wealth, both
measured in hundreds of thousands of dollars. Likewise, because judges who are more personally
exposed to equities from the regulated industry in a given case may tend to either accept or reject
agency choices in litigation involving a firm or interest from such industry, I include a variable
measuring the amount of the Judge’s Personal Financial Interest in the regulated industry, measured in
hundreds of thousands of dollars.

48
Results: Judges Defer to Agency Policy Based on Investment Congruence
The results of the logistic regression model that estimates the likelihood of District of Columbia
Circuit judges voting to uphold administrative choices based on interbranch congruence of
investments are displayed in Table 3. These results confirm my expectations regarding the role of
inter-institutional congruence of personal investments in judges’ decisions about deference to
administrative judgments. The findings in Table 3 indicate that all else equal, judges are more likely to
defer to administrative policy choices given (1) higher levels of congruence between judges’ and
bureaucrats’ personal investments in the industries affected by administrative policy; and (2) higher
levels of congruence between judges’ and bureaucrats’ personal equity wealth.
[ TABLE 3 ABOUT HERE ]
These results follow from the logic presented in the discussion of the industry investment and
equity investment congruence hypotheses, and suggest that judges take into account the degree to
which their personal investments coincide with those of federal bureaucrats responsible for the
policies subject to judicial review. While there is no statistically significant relationship between a
judge’s vote in litigation challenging administrative policy on the one hand the judge’s total wealth,
total equities wealth, or total personal investment in the affected industry, there is a statistically
significant association for judges to defer to challenged agency policies when inter-institutional
congruence in both total equities investments and investments in regulated industries is higher. This
implies that judges are indeed keenly aware of the choices made by federal administrators, and are
more likely to trust policy choices made in agencies led by bureaucrats whose personal financial
interests more closely align with those of the judges themselves. These results are further illustrated
in Figures 1 and 2, which present the likelihood of a pro-agency vote by a federal judge given varying
levels of judge-agency industry and equity investment congruence.
[ FIGURES 1 & 2 ABOUT HERE ]

49
The results also confirm that several other expected predictors of pro-agency judicial decision-
making are associated with pro-agency votes. D.C. Circuit judges appointed by Democratic presidents
were more likely to vote in favor of administrative policies, most likely because all agency decisions
during the time period in question were made by Democratically-appointed administrators or by
majority-Democrat commissions. Similarly, the quasi-default position of judicial deference to agency
choices, as a pro-agency outcome below was associated with judges voting to uphold the agency’s legal
position. Direct appeals from agencies to the D.C. Circuit were also associated with a decreased
likelihood of voting in favor of agency policy at the Circuit level as compared against appeals up from
the D.C. District Court.
These findings complicate our conceptions of how public officials governing in a system of
“separated institutions sharing power” (Neustadt 1990) interact with one another. While a
constitutional arrangement that allocates certain authorities and responsibilities to certain institutions
– including and especially the ability of some institutions to override choices made by others –
commonly leads us to focus on the way in which the separation of powers cultivates interbranch
discord and struggles for political control, this evidence of investment-oriented judicial deference to
agency decisions underscores that there also exist conditions under which the separation of powers
enables interbranch trust. In an age of polarized politics and gridlock, even the suggestion of inter-
institutional cooperation bears superficial appeal; this narrative is somewhat obfuscated, however, by
interbranch cooperation conditioned on the congruence of personal financial interests between judges
and bureaucrats. Rather than implying an increase in the ideals usually associated with political
cooperation such as deliberation, moderation, and compromise, the findings in this article suggest that
the separation of powers paves new avenues still for public officials to traffic comfortably in the
already-wide gray areas of federal ethics standards.

50
Conclusion
Judges are traditionally expected to defer to administrative policy choices due to bureaucratic
specialization and experience with technical complexity. If, however, the judiciary’s deference to
agency decisions is also founded in the congruence of personal investments between judges and
bureaucrats, important normative questions are raised regarding the robustness of the separation of
powers as a fetter on the discretion of both judges and bureaucrats alike. In particular, the findings
suggest the need for careful reconsideration not just of how the private finances of public officials
may lead to conflicts of interest in both judicial and executive branch decision-making, but also how
the interaction between the two may lead to conflicts of the sort that those constructing regulations
on various sorts of self-dealing had not even considered. Indeed, it appears from the results presented
here that both federal judges and federal bureaucrats make policy choices associated with their
personal investments, and that the coincidence of these two tendencies is discernible in the judicial
review of administrative actions when relevant actors’ private financial interests are implicated and
compared with one another. While judges and bureaucrats make choices in many of the same or similar
policy domains, their precise professional and political motivations may necessarily differ, but these
findings suggest that at least some degree of administrative and judicial decision-making can be
explained by the distribution of relevant officials’ personal investments. This differs importantly from
the notion of capture, according to which industry influence on public officials drives decision-making
that redounds to the benefit of firms in the regulated sector or sectors. Instead, the results imply that
the economic dimension to these types of policy choices is more personal in nature.
The institutional safeguard of judicial review is typically presumed to allow a politically neutral
judiciary to rein in excesses perpetrated by officials in the elected branches; by contrast, this article’s
findings suggest that judicial review of administrative actions is at least in part conditioned on judges’
implicit partiality toward their own personal financial interests, manifested in investment-oriented

51
interbranch trust of agency choices. When coupled with the increasingly expansive scope of
bureaucratic discretion, the finding that judicial deference to administrative policies may be associated
with inter-institutional congruence of personal investments suggests the need to carefully reexamine
the centrality of judicial review as a safeguard of deliberative democracy.

52

Table 1: D.C. Circuit Judges’ Investments by Year, 2012-2015

Year Total wealth
(mean)
Total equities
wealth (mean)
Judge with highest reported
aggregate wealth
2012 $2.92 million $1.73 million Garland ($10.00 million)
2013 $4.21 million $2.92 million Henderson ($18.62 million)
2014 $5.07 million $3.82 million Henderson ($18.05 million)
2015 $5.20 million $3.79 million Henderson ($18.05 million)

Table 2: Descriptive Statistics

Variable µ σ min. max.
Pro-Agency Vote 0.65 0.48 0 1
Judge-Agency Industry Investment Congruence -0.09 0.41 -2.90 0
Judge-Agency Equity Investment Congruence -42.21 171.63 -
2923.95
0
Judge’s Party 0.42 0.49 0 1
Pro-Agency Outcome Below 0.96 0.20 0 1
Pro-Business Agency Decision 0.08 0.28 0 1
Appeal from an Agency 0.77 0.42 0 1
Judge’s Total Wealth 43.88 51.87 0.53 186.18
Judge’s Equities Wealth 30.98 36.79 0 119.43
Judge’s Personal Financial Interest 0.03 0.25 0 2.90

53

Table 3: Interbranch Investment Congruence and Judicial Deference to Agencies

Dependent Variable: Vote in Administrative Litigation (1: for agency; 0: against agency)

Independent Variables

Coefficient (Standard error)
Judge-Agency Industry Investment Congruence 0.489 (0.210)*
Judge-Agency Equity Investment Congruence 0.002 (0.001)*
Judge’s Party 0.598 (0.154)*
Pro-Agency Outcome Below 1.085 (0.400)*
Pro-Business Agency Decision 0.003 (0.266)
Appeal from an Agency -0.546 (0.210)*
Judge’s Total Wealth 0.003 (0.004)
Judge’s Equities Wealth -0.003 (0.006)
Judge’s Personal Financial Interest 0.546 (0.343)
Constant -0.154 (0.363)
χ
2
39.12
N 845
* p < 0.01 (two-tailed tests for all except Judge-Agency Industry Investment Congruence, Judge-Agency Equity
Investment Congruence, Judge’s Party, and Pro-Agency Outcome Below).

54

55
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CHAPTER 4

Do Private Interests Govern Public Utilities?
The Personal Finances of Federal Bureaucrats and Decision-Making
On the Federal Energy Regulatory Commission

Jordan Carr Peterson

Abstract: How do the indirect personal financial interests of bureaucrats impact their regulatory choices? Do
the personal financial orientations of administrative officials affect their decision-making even when their
regulatory choices are confined to a discrete portion of the economy in which those officials are not personally
invested? I theorize that bureaucrats in such circumstances will make regulatory decisions based on their own
personal wealth and equities investments. I expect that wealthier bureaucrats and those more heavily invested
in equities markets will tend to favor industry interests when making regulatory choices because of the highly
integrated and interconnected nature of the modern economy. To test my claims, I examine a random subset
of one-third of all 6488 orders issued by the Federal Energy Regulatory Commission from 2013 to 2015, and
consider whether Commissioners’ pro-industry decisions are driven by their own personal investments and
wealth. Although I am unable to confirm my expectations regarding aggregate measures of Commissioners’
wealth and their pro-industry preferences, the findings suggest several potentially fruitful paths forward for
investigations of the conditions under which bureaucrats make policy choices associated with their personal
finances.

58
Expectations of bureaucratic impartiality in policy implementation manifest in ethics rules that
constrain elements of administrative behavior both directly and peripherally related to bureaucrats’
professional conduct. While there exist a panoply of regulations governing conflicts of interest in the
American federal government generally (Anechiarico and Jacobs 1996) and in the executive branch
particularly (see, e.g., 18 U.S.C. § 208), many such rules are considered relatively weak in practice since
they rely heavily on voluntary, affirmative cooperation by the regulated officials. This makes the
systematic examination of varying circumstances in which bureaucrats make policy choices that fail to
achieve the ideal of bureaucratic impartiality especially critical in order that scholars and practitioners
alike can better perceive and understand gaps in the operation of ethical regulations.
Concurrently, and consistent with the arguments elsewhere in this dissertation, the degree to
which policy design and implementation are broadly accomplished by bureaucrats implies the need to
consider how different organizational features of administrative institutions either constrain or enable
the tendency for bureaucrats to make policy choices associated with their personal financial interests.
Moreover, the policy consequences of bureaucrats’ personal finances necessarily depend on both the
types of decisions made by their institution as well as the underlying distribution of their investments.
While some administrative agents responsible for the implementation of certain policy regimes may
make decisions whose consequences are felt broadly across a number of industries and economic
sectors, the economic ramifications of some bureaucratic choices are more narrow in scope. In this
article, I will examine decision-making by members of a federal regulatory body whose policy
jurisdiction is limited to a particular subset of firms in the marketplace: the Federal Energy Regulatory
Commission (FERC), an executive branch agency responsible for the regulation of interstate
wholesale sales of electricity and the interstate transmission of electricity, natural gas, and oil, as well
as the administration of various other licensing schemes and oversight mechanisms. Specifically, I seek
to answer two questions: (1) how do the personal financial interests of FERC commissioners impact

59
their regulatory choices?; and (2) do FERC commissioners’ personal financial orientations affect their
decision-making even though their regulatory choices are confined to a discrete portion of the
economy in which none are personally invested?
I theorize that bureaucrats in agencies like FERC will make regulatory decisions based on their
own personal wealth and equities investments. Since, most likely due to the concentrated nature of
the Commission’s economic influence, no Commissioners are personally and directly exposed to the
success or failure of energy securities, any connection between Commissioners’ investments and their
administrative choices will be indirect. Nevertheless, I expect that wealthier Commissioners and those
more heavily invested in equities markets will tend to favor industry interests before the Commission
because of the highly integrated and interconnected nature of the modern economy. These specific
institutional characteristics of FERC make it a particularly difficult test case for my theory regarding
the policy consequences of bureaucrats’ personal finances. In other words, because the direct impact
of FERC regulation is limited to the energy sector, any indirect pro-industry tendencies would suggest
a strong (if latent) association between pro-market preferences and bureaucrats’ personal financial
orientations.
I test my claims by considering a random subset of one-third of all orders issued by the Federal
Energy Regulatory Commission from 2013 to 2015, and by examining whether Commissioners’ pro-
industry decisions are driven by their own personal investments and wealth. Perhaps due to the
difficult conditions for evaluating the theory discussed earlier, I find no association between personal
financial determinants and regulatory choices by members of FERC during the time period in
question, even despite specifying a number of additional limiting conditions for the analysis discussed
in detail subsequently. While for several reasons this does not automatically imply increased
impartiality or detachment from political and economic interests on FERC versus other federal
bureaus, it suggests the need to consider the institutional prerogatives of the Commission alongside

60
the inter-organizational dynamics between FERC, regulated firms, state utilities commissions, and the
regional cooperatives responsible for the implementation of utilities policy.

The Institutional Landscape of Federal Utilities Regulation

Significant regulation of energy and public utilities did not occur at the national level of American
government until the early twentieth century. In 1920, Congress enacted the Federal Water Power
Act, governing the development and maintenance of hydroelectric dams throughout the United States,
and creating the Federal Power Commission (FPC), a federal agency charged with the authority to
implement the FWPA by issuing licenses to hydroelectric power facilities (see generally 16 U.S.C. §§
791-828). Over time, the agency’s enabling statute underwent modifications in form and function
alike, as its name was shortened to the Federal Power Act and the policy responsibilities of the FPC
grew in number to keep pace with rapid developments in energy generation and transmission
technologies over the course of the ensuing decades (Kelliher 2005). By the 1970s, the FPC – an
independent regulatory agency – was responsible for overseeing the transmission and interstate
wholesale sales of electricity and natural gas, as well as the interstate transmission of natural gas and
oil by pipeline, when Congress enacted the Department of Energy Organization Act of 1977, recasting
the FPC as the Federal Energy Regulatory Commission (FERC) and incorporating it into the newly-
minted Department of Energy while permitting it to retain its status as an independent agency (42
U.S.C. § 7134).
Today, FERC retains all its core regulatory and adjudicatory responsibilities, and now,
somewhat controversially, enjoys the ability to enforce a prohibition on manipulation in utilities
markets and enhanced sanctioning mechanisms against violators (Bloom and O’Brien 2009; Haskell
& McAllister 2011). The agency comprises five commissioners, nominated by the President and
confirmed by the Senate, who serve staggered five-year terms, and no more than three of whom can

61
come from the same political party (Feinstein & Hemel 2017). Whenever debates arise among the
various stakeholders whose interests are implicated by federal utilities policy – e.g., generators,
wholesale suppliers, and wholesale customers of electricity in interstate commerce, owners of natural
gas or oil pipelines, state regulatory agencies, and regional transmission organizations or independent
system operators – the FERC commissioners hear arguments from both sides and issue a written
order, by majority rule, announcing the Commission’s position and stipulating the outcome of the
dispute.
Academic consideration of FERC has chiefly been limited to studies in law reviews that
examine the statutory framework of the Federal Power Act, the Department of Energy Organization
Act of 1977, and the Energy Policy Act of 2005 (Rossi 1995; Sensiba 1999), as well as the judicial
construction of FERC’s institutional responsibilities and prerogatives when appellate courts review
utilities policy at the federal level (Pierce 1991; Rossi 1994). Likewise, some scholars of financial
economics and public administration have considered FERC’s policy choices in terms of their market
effects, such as whether the regulatory accounting and reporting requirements FERC imposes
influence the share prices of Commission-regulated firms (Nunez 2012), as well as the association
between national political conditions and the execution of specific agency duties, such as hydropower
licensing (Blumm 1991; Moore et al. 2001), the development of transmission infrastructure (Snarr
2010), and the harmonization of regulation across the natural gas and electricity sectors (Overton
2014).
14
In addition to many decisions regarding United States public utilities policy, such as the
placement of transmission lines and sales of electricity to consumers, being reserved to state public
service commissions or public utility commissions, FERC also administers a number of policies and

14
Relative to the distribution of industry interests represented before FERC as it issues orders and opinions (in which a
distinct majority – some 70% in my sample – involve disputes regarding the transmission and wholesale sales of
electricity), an outsized proportion of the scholarship in this area has been devoted to FERC’s hydropower licensing
function, likely due to those policies’ intersection with topics related to environmental justice due to their impact on
efforts to promote environmental nondegradation.

62
programs through regional cooperative organizations known as regional transmission organizations
(RTOs) or independent system operators (ISOs), making for a complicated and interconnected
network of policy implementation.

Personal Financial Interests and Indirect Gains in Bureaucratic Decision-Making

Bureaucratic choices present unique challenges for normative evaluation because access to federal
administrative offices does not immediately originate in having won an election (Lowi 1969). The
justification for structuring access to such offices in a manner that deemphasizes electoral politics is
to promote the demand for administrators with technocratic competence over actual or perceived
political loyalty (Hood and Lodge 2004). This detachment from the electoral process, however,
informs the hallmark criticism of policy-making by administrative means: namely, that there is a
troubling deficit in democratic accountability when unelected bureaucrats regulate vast swaths of
American economic and social life (Balla and Gormley 2007). Complicating matters are the
comparatively politicized origins of appointments to many upper-level executive offices in the
American federal bureaucracy, such as the heads of cabinet departments, many of whom have little or
no substantive expertise in the policy area their agency governs (Lewis 2007), or perhaps even have
expressed prior to their appointment an ideological commitment to the elimination of the agency they
are tapped to lead (Mufson and Sullivan 2017). When public officials are nominated and confirmed
under such circumstances, it renders technocratic expertise the responsibility of lower-level civil
servants rather than department executives, and inculcates skepticism in the legitimacy of
administrative policy-making.
The prevailing criticism of bureaucratic policy-making is grounded in the notion that unelected
bureaucrats will administer federal policy based on the preferences of the president that appoints them,
possibly even making implementation choices more ideologically extreme than elected officials since

63
there is no direct electoral mechanism for the bureaucrats’ removal. Critics justify the urgency of these
concerns by citing the massive redistributive effects produced when federal administrative policy
imposes costs and allocates benefits on so large a scale (Evans and Rauch 1999). In addition to the
concern that the president can influence the direction of federal policy by appointing ideological
outliers to lead cabinet departments and then exploiting the breadth of bureaucratic discretion, there
is also increasing awareness of the potential for bureaucrats to make policy choices subject to undue
industry influence or other conflicts of interest (Bennedsen and Feldmann 2006; Epstein and
O’Halloran 1995). These conflicts are typically construed as economic in origin, and the most
prominent objections usually concern the likelihood that industry pressure groups, generally via
lobbying, may exert a disproportionate impact on administrative policy. It is also possible, however,
that aspects of certain regulatory policy choices are determined by bureaucrats’ private interests,
independent of whether external industry pressure exists. This raises a separate but related set of
normative concerns, and necessitates a research agenda that considers systematically whether and the
conditions under which bureaucrats make public policy choices that may be driven by their personal
interests, financial or otherwise.
In this article, I theorize that bureaucrats will exhibit pro-industry preferences in their decision-
making based on the manner in which they allocate their personal assets. Whereas other scholarship
has considered whether members of Congress (Griffin and Anewalt-Remburg 2013; Peterson and
Grose 2016; Welch and Peters 1983) and Supreme Court Justices (Peterson et al. 2018) make policy
choices that advance the value of their personal investments, this article and its counterparts in this
dissertation represent the first attempt to test whether there are any corresponding tendencies when
examining decision-making by members of the federal bureaucracy. In Chapter 2, I argue and find
that members of the National Labor Relations Board (NLRB) deciding disputes in industrial relations
make adjudicatory choices based on the extent to which they are personally invested in the economic

64
sector in which regulated firms operate. Here, however, I will offer modifications to the argument
presented in Chapter 2 in order to account for a different set of institutional and financial
circumstances than that presented by decision-making at the NLRB, by examining the conditions
under which bureaucrats’ pro-industry decision-making may be driven by their indirect personal
financial interests.
Even if bureaucrats are not directly invested in the industries or sectors regulated by their
institutions, administrative decision-making is likely associated with the distribution of bureaucrats’
assets. For example, if a bureaucrat makes policy choices that only impact one industry or economic
sector directly, but in which they have disclosed no direct personal financial interests – such as the
Commissioners on FERC, whose decisions are almost exclusively combined to the energy sector and
none of whom own stock or sector-specific mutual funds in the energy sector – the interconnected
nature of the contemporary economic market suggests that pro-business tendencies should be
detectable for those bureaucrats who are wealthier and more heavily exposed in equities markets.
While related, this stands somewhat in contrast to earlier research in legislative and judicial politics, as
well as the other chapters in this dissertation, in which the analysis has posited a direct link between
the distribution of a public official’s assets by industry or sector and their policy choices. Instead, here
I offer an alternative but not contradictory theory that suggests regulatory decision-making might also
be associated with bureaucrats’ overall wealth and overall exposure to equities, such as stocks and
mutual funds.
Bureaucrats with higher levels of wealth held in equities, proportionate exposure to securities
markets relative to their broader portfolio, and greater total wealth are expected to have a more
favorable general disposition toward industry interests in the market. My theory thus assumes that
pro-industry policy-making in the realm of one major policy area will be favorably correlated with
positive consequences for the market more generally. As a result, I expect that bureaucrats will be

65
more likely to support the preferences of firms in the industry they regulate even if they are not
personally exposed to securities from that sector when the bureaucrats are wealthier in terms of both
gross wealth and equities wealth. If the theory holds, bureaucrats should support pro-industry policy
in a significant sector of the economy that they regulate – such as public utilities policy – because such
policies are expected to have beneficial radiating effects on the value of their personal investments,
even if they are allocated in different industries. It is also possible that bureaucrats will exhibit pro-
industry preferences when making regulatory decisions not only because the value of their own assets
might be enhanced or protected if the value of energy securities rises – a causal connection which is
difficult to demonstrate or anticipate – but also because higher values on these aggregate measures of
their wealth serve as a proxy for latent pro-business preferences. While any evidence in my subsequent
empirical analysis of an association between greater levels of aggregate wealth and pro-industry
preferences will be observationally equivalent between the two motivations posited here, either
instance would represent a significant finding as regards the sorts of calculation that bear on
administrative policy choices.

Expectations for Bureaucratic Asset Distribution and Pro-Industry Preferences
The theory developed in the preceding section informs three specific hypotheses regarding the
observable implications of bureaucrats making decisions indirectly associated with their personal
investments. More specifically, this section lays out my expectations for how Commissioners on
FERC might make choices in keeping with the distribution of their personal assets when deciding on
orders regarding federal public utilities policy. My theory suggests that, all else equal, FERC
Commissioners will vote on orders in a way that enhances or protects the value of their personal
financial interests, despite executive branch ethics regulations barring administrative officials from
making decisions that benefit them economically (18 U.S.C. § 208; 5 C.F.R. Part 2635). Despite there

66
existing no instance across the years in my sample in which a FERC Commissioner reported
freestanding investments in energy securities (and indeed, there are none even in the expanded set of
federal administrators’ finances employed in Chapter 3 of this dissertation, which includes several
additional years of aggregate measures for FERC Commissioners’ personal financial disclosures), the
theory suggests Commissioners will exhibit pro-industry preferences when deciding on orders based
on other aggregate measures of their wealth and asset allocation.
Commissioners are expected to support industry parties to orders when the Commissioners
are wealthier in general. That is, when their total wealth across all reported assets (stocks, mutual
funds, bonds, real estate, money market and cash accounts, among others) is higher, they are expected
to favor industry preferences before FERC. This is in keeping with the notion that wealthier
individuals in general support policies that benefit the economy broadly (Page et al. 2013), including
a tendency to support relaxing regulatory policies that disproportionately burden influential firms in
the marketplace. This leads to the total wealth hypothesis:
Total Wealth Hypothesis: The greater a Commissioner’s total wealth, the
more likely that Commissioner will support an industry party to an order
before FERC.

Likewise, it may be that pro-industry preferences on FERC are not only driven by a
Commissioner’s total wealth, but also by the total or proportionate amount that Commissioners hold
in equities (i.e., in stocks or mutual funds). While as stated previously, no Commissioner in my sample
held stocks in individual energy firms or even sector-specific mutual funds, most Commissioners held
a nontrivial proportion of their net worth in various securities and funds. I expect, then, that
Commissioners who hold a greater total amount of equities wealth as well as a greater proportion of
their total wealth in equities will support industry parties to orders before FERC. Commissioners in
either circumstance are more susceptible to market volatility, and the interconnected nature of the
modern economy suggests that so long as firms are not in direct competition with one another for

67
scarce resources, that pro-industry policy for one sector could result in ancillary benefits for others.
As such, even though no Commissioner has a nonzero investment in energy securities, I expect that
greater total and proportionate amounts of equities wealth will favor industry parties arguing orders
before FERC, as summarized in the total equities wealth and relative equities wealth hypotheses:
Total Equities Wealth Hypothesis: The greater a Commissioner’s total
equities wealth, the more likely that Commissioner will support an industry
party to an order before FERC.

Relative Equities Wealth Hypothesis: The greater the proportion of a
Commissioner’s total wealth held in equities, the more likely that
Commissioner will support an industry party to an order before FERC.

The logic motivating these three hypotheses is perhaps somewhat less immediate than the
more intuitive statement, to summarize the argument from Chapter 2, that pro-industry preferences
among bureaucrats can be explained by the degree to which they are personally exposed to the success
or failure of firms in the sector directly regulated by their policy decisions. Nevertheless, the theory
suggests that the sort of broad tendencies toward pro-business preferences described in these
hypotheses should be reflected in the results of my analysis of decision-making at FERC in the
remainder of this article. The type of associations between aggregate measure of bureaucratic wealth
and pro-industry decisions on individual orders posited here is different in nature from administrators
who have a direct, personal, financial stake in the industry or sector subject to regulation, but
nevertheless suggests an alternative and provocative explanation for pro-business preferences among
public officials whose policy choices are expected to be governed, in a normative sense, by their
technocratic or administrative expertise.

Data and Methods

To examine my theory of how bureaucrats’ personal financial interests may broadly impact their
decision-making even when they are not directly personally exposed to the success or failure of firms
in the sector they regulate, I estimate two logistic regression models – one in which I analyze all FERC

68
orders in my sample, and one in which I restrict the sample to FERC orders involving the electricity
sector alone. In order to construct the dependent variable and independent variables of interest, I
created an original dataset of FERC orders issued from 2013-2015. During that three-year period,
FERC issued 6488 orders. To create the dataset, I first downloaded all 6488 orders for the time period
in question from FERC’s eLibrary.
15
I then excluded from the sample all orders which did not reflect
individual votes or choices by Commissioners (e.g., FERC with some frequency issues “letter orders”
which are signed by the directors of inferior FERC offices, not the Commissioners themselves, and
which do not bear the seal of the Commission) because the appropriate unit of analysis for testing my
theory is at the level of the individual bureaucrat, and the relevant financial data were only readily
accessible for the Commissioners rather than mid-level civil servants at FERC.
16
Next, I took a
random sample of one-third of the remaining 2085 cases to code for inclusion in the dataset employed
to conduct the empirical analysis for this article. I then read and coded these 695 orders.
The dataset includes the outcome of each order (whether each individual Commissioner voted
in favor of the industry complainant’s position or not), the sector impacted by the order (electricity,
natural gas, oil) and the order type (adjudication, rulemaking, financial audit, or investigation). Next, I
gathered the personal financial disclosure forms for all FERC Commissioners from 2013-2015. These
forms were accessible online at the website of the executive branch Office of Government Ethics.
17
I
then transcribed and coded each Commissioner’s personal assets (including the type of investment,
their valuation, and the economic sector of equities owned) in order to create aggregate measures of
Commissioners’ personal finances. The information described here –related to the orientation and

15
The eLibrary permits users to search for and access documents issued and received by FERC, and is accessible at
https://elibrary.ferc.gov/idmws/search/fercgensearch.asp.
16
In addition to excluding letter orders, I excluded errata orders from the sample as well, as these also do not reflect
individual Commissioners’ choices and merely contain corrigenda related to previously-issued orders.
17
Personal financial disclosure forms for high-level executive branch officials are available at
http://www.oge.gov/Open-Government/Access- Records/Current-Executive-Branch-Nominations-and-Appointments
by submitting an online OGE Form 201.

69
disposition of FERC orders and the personal finances of FERC Commissioners – forms the
centerpiece of the subsequent empirical analysis employed to examine my claims about the impact of
bureaucrats’ indirectly-implicated personal financial interests on their administrative policy choices.
Summary statistics for the data employed in my empirical analysis are presented in Table 1.
[ TABLE 1 ABOUT HERE ]
The unit of analysis is the Commissioner-Order, and the dependent variable and the three
independent variables of interest are the same across both models. The dependent variable is whether
each Commissioner cast a Pro-Industry Vote on each order in the sample (coded 0 if a Commissioner
cast a vote against the industry party in the case, and 1 if a Commissioner cast a vote in favor of the
industry party in the case). This dependent variable coding is consistent with other studies of
bureaucratic decision-making on quasi-adjudicative bodies such as the NLRB, as presented elsewhere
in this dissertation (e.g., Moe 1985). The first independent variable of interest is each Commissioner’s
Total Wealth, measured as the total value of assets owned as coded from the Commissioners’ personal
financial disclosure forms from the executive branch OGE. The total wealth hypothesis predicts that
Commissioners who are wealthier are more likely to cast a pro-industry vote. The second independent
variable of interest, also calculated based on having coded the Commissioners’ personal financial
disclosures, is each Commissioner’s Total Equities Wealth. The total equities wealth hypothesis suggests
that Commissioners who hold more of their wealth in equities are also more likely to cast pro-industry
votes. The third and final independent variable of interest computed from the financial disclosure
forms is the Proportion of Wealth in Equities held by each Commissioner. The relative equities wealth
hypothesis predicts that those Commissioners whose distribution of assets includes a greater
proportion in equities (i.e., stocks and mutual funds) will be more likely to vote for industry parties
that come before FERC.

70
The other independent variables are included in order to account for the political and
administrative factors that might influence FERC Commissioners making decisions on orders that
have arrived before them. There are four additional independent variables that are included in both
models, two of which are at the level of the commissioner, and two of which are at the level of the
order or case: (1) each commissioner’s Party, since FERC Commissioners are identifiable by one party
or the other, and based on the expectation that Republican Commissioners – in keeping with the
expectation that Republican elites generally favor business interests more commonly than Democrats
(coded 1 if the Commissioner is a Democrat, and 0 otherwise) – are more likely to cast pro-industry
votes; (2) each commissioner’s Tenure Length, measured in years, to account for the possibility that
more time on the Commission affects the Commissioners’ orientation toward industry interests; (3)
whether the party before the Commission is a Public Entity or not (e.g., a municipal government
attempting to persuade FERC to invalidate an industry choice – coded 1 if the dispute involves a
public entity, and 0 otherwise); and (4) whether the dispute before the Commission involves a Tariff
or Ratemaking dispute, as these orders – in which FERC regulates the tariffs and rates charged by
different public utilities – involve demonstrable economic consequences for the firms involved, so
any tendencies Commissioners have vis-à-vis regulated industries may be more apparent (coded 1 if
the dispute involves tariff or ratemaking choices, and 0 otherwise). Both models also include fixed
effects for time at the year level.
In addition to these independent variables which span both models, the first model – which
examines all FERC orders in my sample – includes indicator variables for the industries involved in
disputes before FERC to control for the possibility that one industry or another enjoys a systematic
advantage when appearing before the Commissioners. The variables reported in the results of the first
model to account for this are Electricity (coded 1 if the dispute involved an electricity generator,
transmitter, or wholesale merchant, and 0 otherwise) and Oil (coded 1 if the dispute involved the

71
interstate transmission of oil via pipeline, and 0 otherwise). These two variables may be interpreted as
compared with the reference category, which is Natural Gas, representing those orders in which the
industry party was an interstate transmitter or wholesale merchant of natural gas.
The second model – in which the sample is restricted to those 73.3% of observations that
involve Commissioners deciding on orders involving the electricity sector – necessarily excludes the
two indicator variables described in the immediately preceding paragraph as there are no orders
involving natural gas or oil. Instead, I include two other indicator variables to account for particular
types of parties that appear before FERC, but only when the Commissioners decide orders involving
the electricity sector: (1) a variable indicating if the non-industry interest in a dispute was an RTO or
ISO, the regional collaborative outfits authorized by FERC to implement certain aspects of national
public utilities policy, including but not limited to decisions about transmission grid reliability,
generator access, and electricity market development (coded 1 if the non-industry party is an RTO or
ISO, and 0 otherwise); and (2) a variable indicating if the non-industry interest in an dispute was
NERC, the North American Electric Reliability Corporation, a nonprofit electric reliability
corporation assigned by FERC pursuant to the Energy Policy Act of 2005 in the wake of widespread
disruptions to the electrical grid in the early 2000s to issue various guidelines for power system
operators (coded 1 if the non-industry party was NERC, and 0 otherwise).

Results: No Association between FERC Personal Finances & Votes on Orders

The results of both models appear in Table 2 below. The model including all FERC orders in my
sample is designated Model 1, and the model including only those orders involving the electricity
sector is designated Model 2.
[ TABLE 2 ABOUT HERE ]

72
The results do not suggest any discernible association between the personal wealth or asset allocation
choices of the FERC Commissioners and their regulatory decision-making. More specifically, the
coefficients on the three independent variables of interest in Model 1 are moving in the opposite
direction from what my expectations suggested, as is one of the three (Proportion of Wealth in Equities)
in Model 2.
18
Of the two independent variables of interest in Model 2 whose coefficients are positive
as expected, neither result is statistically significant based on their p-values. Indeed, the other
independent variables, as a general matter, very few attain statistical significance, although there are a
few notable exceptions.
Across both models, Commissioners were more likely to vote against industry interests when
the party opposing industry preferences was a public entity, such as a state or municipal government.
Likewise, in Model 2 – in which the sample is restricted only to orders involving the electricity sector
– Commissioners were much more likely to oppose industry preferences when the non-industry party
was a regional transmission organization or independent service operator. Taken together, these
results suggest that FERC exhibits a degree of deference to other public entities as well as quasi-
governmental organizations, such as RTOs and ISOs, that are partially responsible for the
administration of federal utilities possible. It certainly stands to reason that an RTO or ISO designated
by FERC as a partner in the implementation of federal energy policy might enjoy a clear advantage
when that organization’s policies are reviewed by FERC executives, as the Commission directs many
of the policies and directives issued by those organizations.
The results in Model 1 also suggest that Commissioners are more likely to vote in favor of
industry interests when deciding on orders related to the natural gas sector versus electricity, although

18
These null findings on the key independent variables persist across a number of alternative specifications of Models 1
and 2, e.g., measuring Commissioners’ total and proportional stock or mutual fund wealth instead of collapsing all
equities together, using the natural logarithm of all dollar-value independent variables, or creating ordinal measures of
wealth.

73
there is no statistically distinguishable difference between the likelihood of a pro-industry vote
involving a natural gas firm versus owners or operators of oil pipelines. This may have to do with
differences in the nature of the underlying claims or complaints among the firms responsible for
generating, transmitting, and selling electricity versus those among operators of gas pipelines; or,
alternatively, could be reflective of the heterogeneity of interests among parties from the electricity
sector versus the natural gas firms. Alternatively, though this explanation is somewhat speculative in
nature, it may be that Commissioners are simply predisposed to disfavor claims made by the electricity
sector, perhaps due to the frequency that such firms publicly oppose and protest FERC policies. It
does not follow, however, that this finding is driven by Commissioners’ personal finances, as no
Commissioner held assets in any of the regulated sectors during the time period examined.
Even in light of these findings, there nevertheless remains a robust research agenda for
examining decision-making on federal utilities regulation, as well as for the broader study of how
bureaucratic decision-making may be associated with administrators’ private financial interests. The
contrasting results between the analyses of decision-making before the NLRB and FERC, respectively,
suggest that features of institutional design across regulatory bodies may explain why bureaucrats in
certain agencies tend to make policy choices associated with their personal finances, while others do
not. Likewise, there are other aspects of the American institutional landscape that may enable or
constrain the capacity of administrative officials to make the types of choices my theory implies they
will. For instance, certain institutions in federal administration operate on policy terrain more heavily
occupied by state governments than others; the intergovernmental power-sharing arrangements
between federal and state actors may affect – either positively or negatively – the extent to which
bureaucrats at the national level are able to decide policy in a manner consistent with my theory’s
expectations as regards their personal investments. Last, it may be that differences in professional
backgrounds across the population of higher-tier federal bureaucrats affect how administrators make

74
policy choices; for instance, the degree to which agency decision-making is associated with increasing
levels of partisan or ideological polarization.

Conclusion

Because the results suggest that bureaucrats responsible for federal public utilities regulation do not
engage in decision-making based on the same types of calculations as in the results presented in the
preceding chapters of this dissertation, they suggest the need for further scrutiny – both theoretical
and empirical – into what drives Commissioners on FERC, and administrators with no direct financial
stake in regulated industries more broadly, to make the policy choices they do. Future work should
consider the host of political and economic factors that may bear on regulatory decision-making in
order to determine whether the case of FERC might be unique due to features of the agency’s
organization, the sector of the economy it regulates, or some combination of the two. Moreover,
although extending such analyses backward is nearly impossible as data from earlier time periods will
not become available further back in time due to executive branch records retention policies, volatile
political circumstances at the national and state levels of American government should provide future
scholars with greater variation across bureaucrats individually and administrative institutions
collectively in order to isolate exactly when private financial interests drive pro-industry policy-making
in the federal bureaucracy.

75

Table 1: Descriptive Statistics

Variable µ σ min. max.
Pro-Industry Vote

0.54 0.50 0 1
Total Wealth

4,060,983 5,022,136 15,000 16,200,000
Total Equities Wealth

2,905,072 3,343,943 0 9,611,000
Proportion of Wealth in Equities

0.72 0.24 0 0.98
Party

0.42 0.49 0 1
Tenure Length

1434.62 942.00 0 3371
Public Entity

0.02 0.14 0 1
Tariff or Ratemaking

0.19 0.39 0 1
RTO or ISO

0.41 0.49 0 1

76

Table 2: FERC Commissioners’ Personal Finances & Regulatory Decision-Making

Dependent variable: Pro-Industry
Vote (coded 1 if Commissioner
votes pro-industry position, 0
otherwise)

Model 1: FERC orders from
all industries & sectors in
sample

Coef. (robust std. error)

Model 2: FERC orders from
electricity sector only

Coef. (robust std. error)

Total Wealth

-0.000 (0.003) 0.001 (0.004)
Total Equities Wealth

-0.000 (0.005) 0.001 (0.006)
Proportion of Wealth in Equities

-0.163 (0.246) -0.089 (0.294)
Party

0.002 (0.101) -0.017 (0.117)
Tenure Length

0.009 (0.018) 0.004 (0.022)
Public Entity

-0.709 (0.297)* -0.883 (0.302)*
Tariff or Ratemaking

-0.124 (0.097) 0.139 (0.116)
Electricity

-1.158 (0.013)*
Oil

-0.044 (0.199)
RTO or ISO

-1.318 (0.102)*
NERC

-0.496 (0.639)
2013 (time fixed effect variable)

-0.028 (0.104) -0.173 (0.125)
2014 (time fixed effect variable)

-0.103 (0.118) -0.090 (0.140)
Constant

1.205 (0.163) 0.553 (0.173)
χ
2

161.20 185.40
N

2867 2117
*p < 0.01; all two-tailed tests except Total Wealth, Total Equities Wealth, Proportion of Wealth in Equities,
Party, RTO or ISO, and NERC; time fixed effects excluded in the interest of space.

77
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Abstract (if available)

Abstract Do federal bureaucrats make policy choices associated with their personal financial interests? Is this type of administrative decision-making more common among certain types of bureaucratic officials versus others? And in what manner are the institutional dynamics when federal judges review administrative policies shaped by the personal investments of judges and bureaucrats alike? In this dissertation, I argue and find that bureaucrats make policy choices that enhance or protect the value of their personal investments, subject to certain political, economic, and social constraints. Likewise, I theorize and find that the personal finances of both federal bureaucrats and judges are relevant for understanding the judicial construction of administrative policy choices when agency regulations are subjected to judicial review. My results suggest the need for continued and differentiated consideration of bureaucratic policy decisions in order to ascertain the depth of any inadequacies in conflict of interest regulations, as well as to assess more fully the appropriate degree of normative concern over administrative policy-making.

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Asset Metadata

Creator Peterson, Jordan Carr (author)

Core Title Private interests in American government institutions

School College of Letters, Arts and Sciences

Degree Doctor of Philosophy

Degree Program Political Science and International Relations

Publication Date 07/18/2018

Defense Date 07/18/2018

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag administrative politics,American political institutions,Bureaucracy,elite decision-making,inter-institutional politics,law and public policy,OAI-PMH Harvest

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Contributor Electronically uploaded by the author (provenance)

Advisor Grose, Christian (committee chair), Barnes, Jeb (committee member), Bertelli, Anthony (committee member), McCann, Pamela Clouser (committee member)

Creator Email jordancarrpeterson@gmail.com,jordancp@usc.edu

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c89-18781

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