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Spring 2022
ISSN 0890-913X
Volume 37, Number 1

Rethinking Regulatory Capture

Randall G. Holcombe, Florida State University
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/index.php?action=ajax&rs=GDMgetPage&rsargs[]=2022 Journal of Private Enterprise Vol 37 No1 Spring revised parte2.pdf&rsargs[]=0
RethinkingRegulatoryCaptureRandallG.Holcombe*FloridaStateUniversityTheJournalofPrivateEnterprise37(1),2022,33-45AbstractThecapturetheoryofregulationconcludesthatregulatoryagenciesactintheinterestsofregulatedfirmsratherthaninthegeneralpublicinterest.Thosebenefitstoregulatedfirmsaretransitory.Inthelongrun,regulatoryprotectionsbenefitlegislatorsandregulatorsbymakingthosewhoareregulateddependentonthosewhohavethepowertoextendorterminatethoseregulatoryprotections.Regulatedfirmsmustcontinuetosupporttheinterestsofthepoliticiansonwhosedecisionstheirprofitabilitydepends.Ultimately,firmsarecapturedbythosewhoregulatethem,ratherthantheotherwayaround.JELCodes:D21,L51,P16Keywords:regulation,rentseeking,transitionalgains,capturetheory,legislativeprocessesThecapturetheoryofregulation(Stigler1971)concludesthatregulatoryagenciesarecapturedbythefirmstheyregulateandtheyactintheinterestsofthosefirmsratherthaninthegeneralpublicinterest.1Thistheory,whilesurelydescriptiveinmanycases,isincompletebecauseitdoesnotexplainwhylegislatorswouldapproveregulatoryinstitutionsthatservetofurthertheinterestoftheregulated.Someinsightonthisquestioncomesfromrecognizingthatthebenefitfromsuchregulationistransitoryanderodesasthepresentvalueoffuturebenefitsiscapitalizedintoassetsownedbythosewhoareregulated(Tullock1975).Theresultisthatregulatedfirmsbecomedependentonthecontinuationoftheirregulatoryprotections,whichallowslegislatorstoextractpaymentsfromthemtoallowregulatoryprotectionstocontinue(McChesney1987,1997;Schweizer2012).*Presentedatthe2022annualmeetingoftheAssociationforPrivateEnterpriseEducation.ThepaperbenefitedfromdiscussionataregulationworkshopsponsoredbytheInstituteforHumaneStudiesinJune2021.1ThisconclusionisalsoreachedbyKolko(1963),whoseworkpredatesStiglers,andRothbard(2017),amongothers.SeePosner(1974)foradiscussionofthistheorycontrastedwiththepublic-interestandinterest-grouptheoriesofregulation.
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