Regulatory capture

Regulatory capture is a phenomenon in which a government regulatory agency which is supposed to be acting in the public interest becomes dominated by the vested interests of the existing incumbents in the industry that it oversees.

In public choice theory, regulatory capture arises naturally from the fact that vested interests have a concentrated stake in the outcomes of political decisions, thus ensuring that they will find means - direct or indirect - to capture decision makers.

The concept is central in a branch of public choice that is often referred to as the "economics of regulation", which is critical of earlier conceptualizations of regulatory intervention by governments as being motivated to protect public goods. Two often cited articles are Laffont & Tirole (1991) and Levine & Forrence (1990).

The theory of regulatory capture is associated with Nobel laureate economist George Stigler, one of its main developers.

Possible examples

In the United States, the examples are the Civil Aeronautics Board, which protected airlines from competition; the Interstate Commerce Commission, known as the "trucker's best friend," which restricted competition in transportation; and the Department of Agriculture, which allegedly implements policies that favor the interests of large corporate farming concerns over those of consumers and family farmers. Another example is how the pharmaceutical industry has managed to turn the FDA into an ally.

In many regions of the United States, some local municipalities are attempting to implement free or advertising–supported wireless internet services (usually via the protocol known as WiFi). In some states, such as Pennsylvania and others, the dominant telecommunications providers have written laws to be introduced and passed by compliant state legislators to prohibit such public services. Such State control is enabled by the de jure regulatory powers of the State, while the telecommunications industry de facto control is enabled (according to some arguments) largely by lobbying, campaign contributions, sponsored transportation and trips to exotic locales for legislators and possibly other less legitimate means such as stock tips (although any connection between contributed money and benefits and an effect upon legislation is generally denied by the parties involved).

See also

• Corporate welfare
• Government failure
• Iron triangle

Links

• Regulatory Capture: Causes and Effects

References

• Laffont, J. J., & Tirole, J. 1991. The politics of government decision making. A theory of regulatory capture. Quarterly Journal of Economics, 106(4): 1089-1127
• Levine, M. E., & Forrence, J. L. 1990. Regulatory capture, public interest, and the public agenda. Toward a synthesis. Journal of Law Economics & Organization, 6: 167-198