Siddharth Dalmia B.Tech., Law (Final)
Jindal Global Law School (20171087)
Mobile: +91 9810081079

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.1 Yale 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.

Game theory will not only help us not miss this bigger picture but also show that how this game is played between lawyers, potential targets, and regulators and how each player in the game could play the game better. Many regulatory agencies have the regulatory bombs at their disposal and it is imperative for us to understand how they can actually be used.

Regulatory bomb has two characteristics. Firstly, they have huge destructive power, i.e., the tool can potentially reduce the target to crumbles (aka destructive impact) and how far in the society its impact would be (destructive scope). The more any of the above is, the more the power the regulatory bomb hold. Secondly, the characteristic is the political taboos which are related to them. They might be considered taboo for a variety of reasons depending on the regulatory agency which has a particular bomb in its arsenal. But, deeper the taboo associated with the bombs, more politically unavailable it is.

Identifying the regulatory bombs

More politically taboo


The illustration above shows what a regulatory bomb actually is and how it cannot be determined through mere science; in fact, it might be considered as more of an art. It shall not be extreme of both the spectrums but must have sufficient of both as illustrated in the Cartesian plane above. What can be called 'sufficient' would have to be judged and there is no clear line which distinguishes what is sufficient and what is not. Some examples of regulatory bombs are as follows:

Example 1: UGC and anti-discrimination laws:

The UGC, in 2012, came out with anti-discrimination laws to prevent and reduce the discrimination both on and off-campus. This regulation was also the first Statute to define victimization and harassment. According to the UGC's "Prevention of Caste-based Discrimination/Harassment/Victimisation and Promotion of Equality in Higher Educational Institutions Regulations 2012", the professor's biased evaluation of the answer script based on the caste of the student, not letting backward class students to work in laboratories etc. have now become a punishable offense. The new Statute gives the power to the victim and his family to lodge a complaint and the place of humiliation (on or off campus) does not matter.

Institutions now have an obligation to appoint an anti-discrimination officer to deal with the complaints. The ombudsman will now be the relevant authority under the new rules which now makes it obligatory for the institute to take action and decide the matter within two months. If violations of the provisions are concerned, UGC will withdraw the grants from the public institution and recommend the revocation of the recognition of a private institute. In place of said rules, many universities have implemented the said rules and created awareness regarding the same.3

From the perspective of the regulator, in this case, UGC, this can prove to be extremely destructive. To give a perspective regarding the importance of UGC funding to the public universities, the universities can pursue research and provide education at subsidized rates because of the same. UGC cuts might result in increased fees which might result in lesser student enrolment and finally, universities becoming a shell and whole investment going to waste. The use of such measures might also be considered as a political taboo. The revocation of recognition or funding has been an extremely rare event since the enactment of the said rules even though caste-based discrimination is still prevalent in many universities. Why is it considered to be a political taboo? It is because not only the wrongdoers or offenders are punished but many innocent people are punished too: the actions of a single individual who discriminated might result in jeopardizing the university as a whole which would be detrimental to the public welfare. Along with this, sadly, the caste-based discrimination is so common that this revocation cannot be said to be a proportional remedy. This might be like lighting the whole house on fire to kill a mosquito when a spray of 'hit' would suffice.

Example 2: Removal of tax-exempt status

Many institutions and organizations such as temples, mosques, museums, hospitals, certain NGOs, schools, etc. have been given tax exemption owing to the needs of society, the welfare of children, upholding fundamental rights and educating/ creating awareness. In America, IRS does not only have the power to determine which organizations can qualify to avail the tax-exempt status but has the power to revoke the same as well if the organization/ institute fails to deliver or misuse the status. 4

Tax-Exempt status is imperative to raise funds. Once the organization's status of tax-exempt is revoked, it becomes very difficult for the organization to raise funds as the donors can no longer claim a tax deduction for their tax purposes. In the U.S., many people make it equivalent to a death penalty. 5 This revocation of tax-exempt status can also be considered to be a political taboo. In most cases, the IRS ignores the wrongdoings/ violation of tax code which can technically lead to revocation of the status. In the USA, churches often escape such regulatory actions/bombs. For example, in 2004 US Presidential Elections, many churches were suspected of having endorsed candidates and these churches were let go by being handed some warning by the IRS. Many churches now have challenged this decision and have formed pressure groups to revoke the tax-exempt status from the churches who were handed the warnings.6 The power to revoke the tax-exempt status has rarely been exercised. This power was once exercised in the case of Bob Jones University in 1976 when it was found that it engaged in a racially discriminatory practice.7 This penalty is considered too harsh to be used frivolously.

Example 3: Central Regulation and Control of PAN Card:

Indian Income Tax Department under the supervision of the Central Board of Direct Taxes (CBDT) issues PAN Card under Section 139A of the IT Act. However, it has now become mandatory to link your PAN with your ADHAAR under the latest directions of the Centre. This is being done to reduce the PAN Card forgeries and increasing the standards of citizens to prove their identity before being issued a PAN Card so as to prevent tax evasion. If it is not linked till the required date, the PAN Card would become invalid and would not be able to pay their taxes or use it as a proof of identity.

This particular notification is destructive and has a very wide scope. Sanctions under this provision might leave many people unable to pay taxes and prosecuted under the IT Act. This would lead to many citizens suffering and subject to regulatory harassment and IT prosecution. Barring people from paying taxes and comply with the mandatory requirement of the state might be seen as a political taboo. This taboo has a wider scope where the fundamental right of privacy of a citizen is subject to be infringed for regulatory purpose and it is a debatable issue whether such a rule complies with the proportionality principle. This has led to a lot of litigation in the Supreme Court of India. Objections voiced by the people in PIL include concerns that the Act is an identity theft hazard, an excessive burden on citizens, and a de facto requirement for a PAN Card, and many more.8

Many such examples exist, and the above examples show the scope and ambit of regulatory bombs and what they are. This helps us understand the context of the theory discussed ahead in this paper.


Schelling's game-theoretic approach showed to the U.S. during the cold war as to how the nukes could be used before being launched. How they would play a crucial role in having diplomatic conversations. This was a leap from the zero-sum games which existed before that. He showed how elevating the threat top launch nukes was better than actual annihilation of the enemy and top-secret plans. In our case, it is not hard to understand how regulatory bombs can be considered in the context of nuclear strategy put forward by Schelling which won him the Nobel prize. We need to understand how regulatory agencies use regulatory bombs and how they ought to be used. The game assumptions are as follows:

  1. A set of players are there in the game.
  2. A player has more than one strategy which he can choose.
  3. Each strategy has its own advantages and payoffs.

The two players in the game would be a regulatory agency and regulatory target and this could be an institution/ organization/ individual/ segment of the society based on various situations. The strategy in the game would be the choices to be exercised against each other with respect to regulatory bombs. The game starts with the question regarding the threat to explode these regulatory bombs. And this threat would often be used by the agencies to get the necessary compliances or whatever they want. The second question would then include the response to the threat by the agency. This would lead to the determination whether the target would comply with the demands of the agency. And if the threat regarding the use of regulatory bombs was not exercised, the targets could still choose to comply or not comply with the regulatory command/ mandate. The third question involves whether the power to execute the regulatory bomb should be exercised due to noncompliance of law or mandate of the regulatory body. The fourth step would involve the retaliation from the side of the target in response to the action of regulatory agency. This game is known as the game of 'extensive form'. This could be represented using a decision tree-like model and would be solved using the same. The tree for the game is as follows:


The result of the player executing a particular strategy might result in it's own pros and cons. A regulatory authority which makes threats gets differentiating payoffs depending on how the intended targets respond to threats. To decide what moves are to be made, the players look ahead in the tree above and decide on a strategy by weighing the required pros and cons. The game theory's basic assumption is that all the players playing the game are rational and will choose the strategy with maximum gains. This does not mean all the players have the same information but the assumption is based on the fact that the player will make the best decision for himself given the available information. For example, if a target has a reasonable belief that the regulatory agency would drop the bomb, it would strategize and act accordingly. This lays down the groundwork on which the rest of the article is based on with regards to game theory.


The first point where trees diverge is on the regulatory agency's move and its decision whether to make a threat or not. "Today the expenditure of billions of dollars every year on weapons acquired for the purpose of making sure we never need to use them is essential to keeping the peace. But surely, the acquisition of such idle stockpiles - which can only destroy and never create - is not the only, much less the most efficient means of assuring peace."- John F. Kennedy9. The execution of threats is detrimental to everyone involved. Threat becomes really dangerous when it fails. So, regulatory agencies make the threats in the hope that they would comply to their command when coerced. The idea is to make the threat of dropping a regulatory bomb such that it is perceived as credible and probable to be executed. The threat decision nodes are circled in the tree.


Unlike the arsenal of weapons that an agency has, it poses a huge difficulty to make the threats seem plausible when one makes them with regards to dropping regulatory bombs. Because the consequences and effects of these bombs are so huge, it is very difficult for the agencies to make them seem realistic. Schelling, talking about government threats of the nukes, said that, "Saying so, unfortunately, does not make it true; and if it is true, saying so does not always make it believed." The very thing which makes regulatory bombs so powerful may end up their greatest weakness as the probability of executing the threat becomes very less. But Schelling gave 6 ways to make the threats seem more plausible which are as follows:

  • Giving up controls
  • During the cold war, Schelling noted that America's threat to use the nukes was very implausible. On the one hand, there were leaders of the Soviet Union who acted erratically and irrationally (Nikita) and on the other, there was the stable elected democratic rational government of the USA. Schelling realized that what might appear to be unthinkable to a rational person might very much be plausible for an erratic and irrational person, which made the threat to launch nukes all the more plausible from the Soviets. Schelling had to come up with ways to make the threats seem plausible without appearing unstable and irrational to the world.
    • Giving up the controls by threats which are deterrent: Schelling identified the basic problem with the threats was the threat maker in case of a contingency was required to do something which he would not have preferred to do even during the contingency. In short, this whole affair was controlled by the behavior of other party. Schelling then realized that the dynamics of the same could be changed if the target was able to control his destiny or control the weapon with his actions. In theory, it would resemble a suicide in all practical ways. If the discretion of the threat maker is removed while executing the threat and the whole process is made automatic, it will make the threat seem all the more credible.
    • But he also pointed that the threat might be accidentally executed, and to stop that from happening, the regulatory agency needs to lay a clear regulatory tripwire, which cannot be stumbled on, visible to the naked eye and connected to some sort of weapon. The bedrock of this strategy can hence be seen to be deterrence. Deterrence would involve setting the right equipment, announcing the consequences, by laying an obligation and waiting. If you cross the line, the threat is fulfilled and the land mines might explode or you might be shot because of self-defence.
    • Regulatory bombs are often rigged with such trip vires, which serve as an explicit warning to he wrongdoers and might be executed in accordance with regulatory rules or statutes. When such a tripwire is laid, the regulatory targets always want to know what their position is and if they have crossed the line.
    • The threats which are 'Compellent': This method involves conveying to the target that they should not just restrain from crossing the line, but they must do something to get out of the way in order to avoid them. Schelling says that compellance means starting an action or inititng a threat but which may end up being harmless if the opponent responds. For example, India's threat to war if their air force pilot Abhinandan is not released according to the Geneva convention by the state of Pakistan. Another example of the Compellent threat is the chicken game often cited in game theory literature. In this game two cars speed head-on towards each other. And the shame of backing down is nothing compared to the result which would have happened if neither party would have backed down. In most cases, the winner of the chicken game is determined based on the risk aversion and nerves a player has. But the players in the game can have a significant tactical advantage based on their tactical commitment. The key lies in abandoning one's fate in one's own hand.
  • Brinksmanship and uncertainty: Although the threat might seem implausible, the threat to act in a way that might make the threat more plausible might end up making the threat more plausible. Uncertainty has the characteristic to make the implausible probable. And brinksmanship means leveraging the uncertainty in the context of the military. An important role is played by the uncertainty in determining the probability of executing the threat of a regulatory bomb. Most of the academicians in the game theory start with an assumption that the game theory starts with the perfect and equal distribution of information between the parties, the uncertainty can drastically change the scales and make them imbalanced. The absence of uncertainty might end up in the expectation that the regulatory bombs would never be dropped. We would always see the targets to be non- compliant in all circumstances if that were the case.
  • Third-Party Control: The decision-making power can be delegated to make the plausibility of threats seem much more. One of the first reasons being that the randomness is introduced in the equation. Second, being the person who would be made in-charge might have different incentives than the one who delegated the power. For example, employing thugs or goons to collect money for you might end up bringing back the money much more easily. Another example would be supplying nukes to countries that might be friendly to India but not have the same principles might help the threat make more plausible. Such decision-making powers can be delegated to lower-level experts or experts, and agency can hold the discretionary power to execute one over the other.
  • Putting honor and reputation on stake: Putting yourself in a position from where you cannot back down makes the threat appear to be much more credible. In the context of the nukes, Schelling put forth that incurring political involvement, obligation and putting the nation's honor and diplomatic reputation on the line would make the threat to use the nukes highly probable. In recent times, the threat of going to war with the Pakistan by Indian prime minister Narender Modi was enough to make Pakistan release Abhinandan according to the Geneva convention.
  • Interdependence: The previous negotiations impact future negotiations. Sometimes, it is easier to say that it is imperative that we would have to react in certain situation because if we did not react, the parties/ targets would not believe the authorities the next time.
  • Dividing into intermediate steps: When threatening to drop the regulatory bombs, it would seem much more credible if the whole process was divided into smaller threats and then executing the smaller steps one at a time. This shows that during the transgression as more and more threats would be executed, the ultimate result would be dropping off the regulatory bomb.

Defiance and compliance:

The targets might comply or defy the mandate of the regulatory agency. Many examples of the same can be looked at, which include Russian ships turning back during the Cuban missile crisis, Japan surrendering in order to avoid further loss from the use of nukes and the obstinacy of Kim Jon II to pursue the nuclear program even when faced with pressure worldwide. While deciding whether to comply or defy the order, the regulatory target has to take many factors into consideration. These factors would be discussed below. The defiance and compliance nodes are marked below.


  • Factors considered by the targets
    • Cost of Compliance: The factor which would be considered by the target is the cost of compliance. In the movie Austin Powers: International Man of Mystery, Dr. Evil appears on the television and says that he has stolen nukes and now demands a ransom. First, he demands a million dollars, and all the world leaders are shocked and as soon as he realizes that he quoted less price, he says that he made a mistake and meant one hundred billion dollars. Now the leaders have a much more serious look on their faces and they tell Dr. Evil that according to the UN treaty, they cannot bargain with the terrorists. This example helps us understand the components of the compliance costs, i.e., effort costs and political costs. In this example, the effort costs, which include both monies based as well as other costs, should be proportional to the threat. In this example, it was Dr. Evil increasing the ransom cost to 100 billion dollars. The political costs are seen as negative aspects by complying to the threats. With respect to the movie discussed above, it might include the costs associated with bargaining with a terrorist or setting a bad precedent. The cost might also involve the reputational cost such as caving to the threats of terrorists. In real life, the example of Munich massacre can be seen as a non- compliance with the demands of terrorists who had leverage.
    • In the case of regulatory bombs, the political costs are often imperative considerations. Yale School's ideology was against the policy of military not allowing lesbians and gays and hence Yale had a difficult time in allowing them to recruit from it's campus. When Yale finally had to comply with the demands of the military, it had to compromise on the implementation of the ideology. When faced with a threat, the regulatory target often has to take into consideration the kind of precedent it's action would end up setting up and also how it would weaken the target in future strategic interactions.
    • Risks involved in the agency's launch of nukes: The target might consider the perceived risk with regards to the agency dropping the regulatory bomb. The seriousness (perceived) of the threat can be made a function of potential damage caused by the drop and the probability of agency actually exercising its threat. This is a complicated problem as it involves too many variables.
    • Regulatory bomb and harm associated with it: The third factor lies in evaluating the harm associated with agency actually exercising it's threat. From our discussion, it might seem as if the use of the regulatory bomb would result in complete annihilation; it can at most be said to be contextual. Taking the example of the Yale Law School, Yale law school was more concerned about the funding being stopped for it's medical, engineering and science department and it would have wider and more catastrophic consequences if funding was lost to the other campuses and Yale had to take the ultimate step for the greater good. But William Mitchell College of Law and Vermont Law School were issued similar threats but because they did not have such huge campuses and did not rely heavily on the federal funding. 10This leads them to stand their ground and not succumb to the regulatory agency even when the regulatory bomb was dropped on them. The blow was heavy but not severe enough compared to what Yale would have suffered if Yale would not have complied with the agency's mandate.
  • The story of Compliance: The mere possibility of agency using the regulatory bombs translates into possibility of target suffering huge damages; in most of the cases, targets just comply with the regulatory authority without hassle. In most of such cases, the agency does not even have to make the threats. The prospect of threat of use is deterrent enough to command compliance.

The compliance can be expected in most of the cases as the cost of compliance is generally far less than the harm due to non- compliance. The next part discusses the circumstance when the regulatory target decides not to comply.

Humiliation and Detonation:

As per Schelling, a number of reasons might make two countries go on war with each other. War might happen if both countries have committed to opposite positions from which it might not be possible to reconcile, and no country is willing to back down. Second, it might be because of credible commitments and threats or in some cases, relinquish the path to retreat. These reasons show the consequences of credible threats, failure to comply means shouldering the consequences of living through and living with the stigma of a pushover. If the target defies the agency, the agency is left with two unpleasant options, i.e., dropping the regulatory bomb or exposing itself to the world that it does not have the guts to pull the trigger.


  • Dropping the bomb: Once the bomb is dropped, the history of the regulatory bomb/ regulatory tool is modified and changes forever. Now, this tool would never mean an idle threat but a threat which would be much more plausible to execute because of the precedent it has created.
  • Back down and keep quiet: If a regulatory agency threatened to drop the regulatory bomb but did not even after the noncompliance, it can be said that it would have been better for the agency to have never made the threat in the first place. In the absence of a threat, these regulatory bombs are nothing but souvenirs that cannot be used. When the target faces a threat, it is not the weapon which is important but the agency which needs to exercise it. And in this case, the agency has shown it does not have guts to pull the trigger. This results in the agency being exposed and perceived to be weak.

Sometimes, the target has the resources and position to retaliate.


As Schelling pointed, in the world where nuclear arms are abundant, the threat of retaliation has caused them not to be launched. Therefore, Schelling proposed an optimal military strategy which maximizes the power to hurt and commitment not to be the first one to use the nukes. In the case of regulatory bombs, the target or regulated organizations and agencies have their recourse to retaliate.


  • Weapons owned by the targets: Some targets have the power to retaliate by themselves. Big corporations and companies have the funds to run advertisement campaigns and lobby against the regulatory agencies.
  • Retaliation by third parties: Regulatory Agencies have to worry about organizations other than the targets. The checks and balances provide ample recourses to the target. Parliament in India and Congress in the USA have sufficient tools at their disposal to make the working of the agency difficult. The potential actions might include cutting the budget allocation to the agency, revoking the power of agency by amending the necessary statutes or impeaching the higher-ups. Agencies, in such cases, might have to look out for the scrutiny from the courts. Lawsuits are real concerns for an agency. In the worst-case scenario, the agencies might have to answer to the committees headed by the head of the executive wing, i.e., the President.


Agencies have been givenn the power to use the regulatory bombs, but they must be dropped diligently but their use (as a threat) is not limited and exercised regularly. Game theory helps us understand how and when such threats should be given an effect. Schelling's model on warfare and nuclear weapons can be used as a tool to understand how the regulatory agencies work throughout the world.


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  2. Spaniel W, Game Theory 101 ([Createspace] 2015)
  3. Daniels B, When Agencies Go Nuclear: A Game Theoretic Approach To The Biggest Sticks In An Agency'S Arsenal (The George Washington Law Review 2012)
  4. 81 U. Chi. L. Rev. 481 2014


1. Burt v. Gates, 502 F.3d at 192.

2. Thomas Kaplan, 'Yale Law, Newly Defeated, Allows Military Recruiters' (, 2007) ( accessed 3 May 2019.

3. Alya Mishra, 'New Anti-Discrimination Laws For Universities May Not Be Enough' (University World News, 2012) ( accessed 3 May 2019.

4. 'Revocation Of Tax Exemption' (National Council of Nonprofits, 2019) ( accessed 3 May 2019.

5. On the Limits of Charity: Lobbying, Litigation, and Electoral Politics by Charitable Organizations Under the Internal Revenue Code and Related Laws, 69 BROOK. L. REV. 1, 65 (2004) by Oliver A. Houck.

6. Joy Powell, Warroad Church Preaches Politics as Part of Protest, STAR TRIB. (Minneapolis), Oct. 2, 2011,

7. Bob Jones Univ. v. United States, 461 U.S. 574, 580–81 (1983)

8. 'Link Aadhaar' (, 2019) ( accessed 3 May 2019.; 'How To Link Aadhaar To PAN Card Using SMS Facility And Income Tax E-Filing Portal' (, 2019) ( accessed 3 May 2019.

9. 'Kennedy's Speech At The American University, 10 June 1963' (, 2019) ( accessed 3 May 2019.

10. Rumsfeld v. Forum for Academic and Institutional Rights, Inc., 33 OHIO N.U. L. REV. 715, 726 (2007)

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