New research by Logan Emery and Mara Faccio systematically maps the movement of former regulators into the private sector and assesses its impact on government procurement. While evidence of quid pro quos is scant, these appointments drive up contract costs by $30 billion, raising concerns about inefficiencies and taxpayer burdens.
The flow of personnel between regulatory agencies and the private sector—commonly referred to as the “revolving door”—has been widely studied in discussions of regulatory and economic policy. The phenomenon raises questions about potential conflicts of interest and the extent to which former regulators may influence firm outcomes.
On one hand, a regulator’s familiarity with agency procedures, key decision-makers, and compliance processes can provide firms with an advantage in navigating complex regulatory environments. Firms may therefore hire former regulators to leverage their institutional expertise and regulatory knowledge. On the other hand, regulators may provide preferential monitoring, lenient enforcement, or favorable contract terms in exchange for employment after leaving the public sector. Firms may therefore hire former regulators (or their family members) as part of an illegal quid pro quo. Former Air Force Principal Deputy Darleen Druyun, who pleaded guilty of corruption charges in relation to the leasing of refueling jets from Boeing, fits well into the latter description.
Understanding the implications of the revolving door is critical for policymakers and the general public. If firms gain undue advantages through these appointments, it could undermine regulatory integrity and create costly inefficiencies in government processes. Conversely, if firms primarily appoint former regulators for their knowledge and expertise, these transitions might improve regulatory compliance and operational efficiency. While scholars have made meaningful headway in examining the incentives behind the revolving door, prior studies have been limited in scope, often focusing on specific industries or settings. No comprehensive mapping of the revolving door currently exists.
In a paper recently published in the Journal of Financial and Quantitative Analysis, “Exposing the Revolving Door in Executive Branch Agencies,” we endeavor to fill this gap by systematically mapping transitions of regulators from the public to private sector and assessing their effects on the allocation of public procurement contracts. Our analysis investigates the employment history of over 420,000 individuals holding top corporate positions across nearly 13,000 firms, with a particular interest in former regulators with experience at one of 187 United States executive branch agencies.
While we find that the revolving door phenomenon is pervasive, we do not find systematic evidence of quid pro quos. Nonetheless, the evidence does suggest that former regulators help firms renegotiate the price of procurement contracts, resulting in an increased cost for taxpayers.
Mapping the Revolving Door
To create a mapping of the revolving door, we consider the career trajectories of all top corporate executives in our sample and identify those with prior work experience in executive branch agencies as former regulators. We find that more than half of all firms in our sample have at least one such former regulator appointed to a top corporate position. A notable proportion of these appointments occur within two years of the regulator leaving government service (we refer to these as “direct transitions”).
The agencies most frequently involved in direct transitions include the Department of Defense, the Federal Reserve, the Executive Office of the President, and the Department of State. These agencies play a critical role in shaping industries such as defense contracting, finance, and international trade, where regulatory expertise and relationships with government entities are particularly valuable. Within these firms, the individuals making these transitions often hold senior executive positions such as board members, chief executives, or general counsels. Positions, in other words, that place them in roles capable of influencing corporate strategy and regulatory interactions.
Our analysis also indicates that these transitions are more likely to occur from agencies that directly regulate the firm’s industry, and in particular, following an increase in regulation from these agencies. These findings highlight the strategic nature of these appointments and suggest that firms are attuned to regulatory shifts when making executive appointment decisions.
Benefits and Incentives
The two primary incentives for appointing former regulators, as part of a quid pro quo or to leverage their expertise and knowledge, make distinct predictions about the timing of the benefits firms may receive from appointing former regulators. Consider the allocation of procurement contracts, in which government agencies select among firms bidding to provide goods or services at a specified price. If a former regulator is appointed in exchange for having provided the firm favorable contract terms while working at the agency, then we expect the incidence of contracts to increase prior to the appointment of that former regulator. Alternatively, if the former regulator is appointed for their expertise and knowledge in obtaining and executing contracts, then we expect the incidence of contracts to increase following the appointment of that former regulator.
In our analysis, we find that firms are almost twice as likely to be awarded procurement contracts following the appointment of former regulators. This evidence suggests that, on average, firms appoint former regulators to top executive positions to leverage their expertise in managing the firms’ relationships with government agencies. Moreover, the results partially alleviate concerns that the revolving door is predominantly used by firms to engage in illegal quid pro quos.
However, while the broad scope of our study provides us a more comprehensive view of the revolving door, it may be infeasible for firms to engage in quid pro quos at such a scale. For example, it is possible that only a limited number of regulators have the power to provide firms the valuable benefits that warrant a subsequent executive appointment. Still, when we limit our analysis to former regulators who held powerful positions at their agency (i.e., presidential appointees), we find no systematic evidence of quid pro quos.
Contract Renegotiations
The evidence suggests that former regulators use their expertise and knowledge to help firms manage their procurement contracts. Does this imply an increase in operational efficiency? Not necessarily.
To investigate this question, we examine subsequent contract renegotiations. After firms are awarded procurement contracts, they can renegotiate the price of providing the goods or services if costs turn out to be higher than expected. This creates an incentive to strategically enter a low bid to win the contract in anticipation of renegotiating the price later. A former regulator’s familiarity with agency procedures, key decision-makers, and compliance processes may be extremely valuable for such a strategy.
Indeed, we find that contracts awarded following the appointment of a former regulator are more than twice as likely to be renegotiated, resulting in an increased price for the government. These effects are concentrated in less complex contracts, and so are not a result of contract complexity. This indicates that even though the revolving door may not systematically reflect firms engaging in illegal quid pro quos, the phenomenon still undermines the efficiency of the public procurement process.
Conclusion
The revolving door between agencies and firms is pervasive and plays a significant role in shaping government contracting and regulatory oversight. Our findings show that firms benefit from hiring former regulators through increased access to procurement contracts. Furthermore, these appointments correlate with more frequent and costly contract renegotiations, raising concerns about potential inefficiencies and increased costs to taxpayers. In fact, our estimates reveal costs amounting to nearly 30 billion dollars from 2000-2018. While the revolving door may provide firms with valuable regulatory expertise, its broader impact on market competition and public expenditure deserves careful scrutiny.
Author’s Disclosure: The authors report no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
