A SIGNALING THEORY OF CONGRESSIONAL OVERSIGHT

A take-it-or-leave-it bargaining game with asymmetric information and costly signaling is used to examine Congressional supervision (“oversight”) of federal agencies. Hearings signal the resoluteness of the committee-the likelihood that the committee will expend the effort to draft and pass a bill overruling an agency. Two kinds of sequential equilibria exist: a pooling equilibrium, and a set of partial-pooling equilibria in which the receiver is able to distinguish among groups of senders. When the receiver sends its utility-maximizing offer, the sender vetoes with positive probability, and if a compromise offer is sent, it is sent on the assurance of its acceptance. These results resemble patterns in oversight observed in Congress. Journal of Economic Literature Classification Numbers: 025, 026. © 1993 Academic Press, Inc.