Jeff Horwich: Politicians and government watchdogs are perpetually worried about something they call “the revolving door”: private sector people take jobs in government for a while, then leave again for the private world. The worry is that their own economic incentives affect their work as public servants.
A team of researchers has a new paper out today that looks at this effect on lawyers at the Securities and Exchange Commission, the SEC.
Simi Kedia is a professor of finance and economics at the Rutgers Business School. Good to talk with you.
Simi Kedia: Very good to be here.
Horwich: So lawyers go to work at the SEC for a while, then go on to some presumably plum job in the private sector. What specifically is the concern about how their work might be affected?
Kedia: So the specific concern might be for example that if they want to get a job in a private law firm and they are involved in a case where a private law firm is defending a client against the SEC, that they might somehow compromise the SEC regulatory effort and be sort of more lenient towards the private law firm, who they might eventually want to join.
Horwich: So that’s the kind of gut feeling, doesn’t feel like there was much data on it though. How did you actually test that?
Kedia: We basically tested whether the SEC lawyers who eventually leave the SEC to join private law firms, that they somehow do less rigorous regulatory effort while they were at the SEC and possibly contemplating leaving the SEC to join the private law firms. So we found actually quite contrary that not only there was no less regulatory effort, we found that they actually worked harder while they were at the SEC.
Horwich: And they might actually have, dare we say: integrity?
Horwich: Does this lessen your own cynicism? Does it give you more faith in our public servants, at least at the SEC?
Kedia: It does work, although I do like to point out that we are able to look at only a very small segment of the data. So it does lessen my skepticism, and given that the SEC has been under a lot of scrutiny in the past few years, it does seem to suggest that some things are working right.
Horwich: Simi Kedia, professor of finance and economics at Rutgers. Great to talk with you, thanks.
Kedia: Thank you very much, Jeff.