Navigating Rivalry and Insight: Bureaucratic Behaviors in Decentralized Regulatory Systems

ABSTRACT We study how regulatory competition and learning shape bureaucratic behaviors under regulatory federalism in the US, focusing on Clean Air Act enforcement within intra‐firm networks. Using facility‐level panel data on inspections from 2005 to 2017, we examine how sibling facility violations influence state regulators' scrutiny of focal facilities. These mechanisms predict opposite effects: learning increases scrutiny, while competition decreases it. Our findings provide evidence for both mechanisms, with their relative strength varying under different conditions. Regulators increase scrutiny following violations by same‐state sibling facilities, highlighting strong learning effects when information is accessible and accountability pressures are high. Conversely, scrutiny decreases after violations by same‐industry siblings in competitor states, demonstrating competitive incentives when business opportunities are relevant. These results clarify the interplay between competition and learning in regulatory federalism and offer practical insights for mitigating adverse competition dynamics and strengthening learning to enhance decentralized regulatory systems.