Abstract: How do administrative agencies interpret the law when it is ambiguous? This paper shows that administrative agencies choose between two strategies of statutory interpretation: the risky strategy � a relatively aggressive interpretation that provokes an appeal by the firm � and the safe strategy � a relatively non-aggressive interpretation that the firm complies with. The agency�s strategy depends on the level of judicial deference, and on litigation costs. It turns out that an increase in the level of judicial deference or in the firm�s litigation cost will not necessarily result in the agency choosing a more aggressive statutory interpretation. Since an increase in the level of judicial deference may result in a shift from the risky strategy to safe
one or vice versa, the number of cases in which the court upheld the agency�s interpretation cannot be used to measure the effect of such a change.