This article would use the work of Thomas Schelling to determine the use of regulatory bombs, which can be considered as an important factor that impact the calculus of regulations. The analysis shows that the agencies get the desired results just by the threat of the use of regulatory bombs rather than by using them. This article would show a wealth of examples to illustrate the importance of game theory in various aspects of the administrative state.
Since the year 1978, Yale Law School has made it mandatory for the recruiters to sign a pledge of non-discrimination against the students based on their gender. Most of the recruiters had no problem in doing so but the military had the problem as the military openly excluded gay/ lesbians from being recruited. This resulted in the US military not being able to participate in the recruitment process. This scenario followed over the years and the military was not able to recruit from Yale Law School. But post the terrorist attacks in September 2011, Congress (legislative wing) gave the power to the Department of Defence to cut off the whole university’s federal funding if the university did not permit the military to recruit. This implied that if the ways of Yale Law School were not changed, it would lose the federal funding of 300 million dollars on an annual basis. Yale Law School did not receive much of this funding but Yale’s engineering, medical and science departments would end up suffering due to this policy but still, Yale Law School did not change its policy.
When the Department of Defence realized that Yale was not going to back down, it served an ultimatum to the law school which basically asked the law school to allow the military to recruit or lose all the federal funding. Yale tried to dispute its way through this but was unsuccessful
1Yale Law School finally surrendered in 2007 and allowed the military to recruit from its law school.2
The above case serves as a perfect example to understand what a ‘regulatory bomb’ is. It has two primary characteristics, i.e., 1) It has the power to drastically impact the intended regulatory target(s) and bring about significant economic changes or the changes which would affect important aspects of society. 2) This power should only be used as a last resort or in extreme situations.
In India, many Central agencies have such powers, and examples are as follows:
• RBI’s power to shut/ suspend all the banks and financial institutions. • National Broadcasting Agency power to suspend any channel/ revoke license or suspend take away the broadband spectrum. • Revenue Services have the right to revoke tax-exempt status from an organization.
It is easy to forget about regulatory bombs as they as rarely used. The fact is that these bombs are never launched but often used. These powers often have other uses. The perfect analogy would be using nuclear bombs in the course of diplomacy, and the regulatory bombs are used to influence the regulatory targets. As we saw in the example discussed above, an agency could be forced to comply just by threatening the use of the regulatory bomb.
This article treats the use of regulatory bombs akin to nuclear bombs being used in warfare. It will provide a lens to view the whole calculus of regulation. Game theory and Thomas Schelling’s work (on use of countries' use of nukes) would be used to explain how these regulatory bombs are used by various agencies in the world. And prima facie, it appears that both (nuclear weapons and regulatory bombs) would be used in a similar manner so this analogy would help us understand the most powerful arsenal in the clutches of regulatory agencies. It helps us disprove the misconception that if a regulatory bomb is not put into action, it is not often used. Game theory also helps us analyze the posturing, threats, and coercion that takes place while threatening to explode the regulatory bomb. We only focus on the explosions or how these bombs are never actually used would be akin to us only focussing on Nagasaki and Hiroshima and ignoring the cold war altogether. We should always have the bigger picture in perspective to understand how regulatory authorities work.