The Economic Theory of Regulation after a Decade of Deregulation

Abstract

WHAT HAS COME to be called the economic theory of regulation, or ET, began with an article by George Stigler in 1971.1 The most important element of this theory is its integration of the analysis of political behavior with the larger body of economic analysis. Politicians, like the rest of us, are presumed to be self-interested maximizers. This means that interest groups can influence the outcome of the regulatory process by providing financial or other support to politicians or regulators. Simultaneously with Stigler, Richard Posner provided an important critique, and several years later he gave the theory its grandiose name. The major theoretical development of the ET has been an article by Peltzman in 1976 and one by Gary Becker in 1983.2 By conventional measures the theory has been an academic success. In this paper I evaluate that success in light of the changes in regulatory institutions that have occurred since the ET's early development.

Labor and Product Market Deregulation: Partial, Sequential, or Simultaneous Reform?

“…For a formal discussion of complementarities of between various labor market reforms see, for instance, Coe and Snower (1997). 31 Among the more influential papers on the political economy behind (de)regulation are Stigler (1971), Becker (1983), and Peltzman (1976, 1989, who stress the role of powerful interest groups. In a voting framework, Fernandez and Rodrik (1991) argue that uncertainty about individual winners and losers can lead to a bias against reforms.…”

Climate Policies and Nationally Determined Contributions: Reconciling the Needed Ambition with the Political Economy

“…In contrast, policy costs tend to be visible, immediate, and concentrated over a few industries, for instance the coal industry in the case of climate mitigation, which may have a de facto ability to veto the reform. Indeed, the theory of the political economy of reforms establishes that concentrated interest groups find it easier to organize themselves, while large and diffuse groups face much higher costs of organization and are thus less audible in the policy debate (Olson, 1977;Peltzman et al, 1989;Stigler, 1971;Trebilcock, 2014a). For reforms proposals to be more likely to pass, governments may thus try to avoid, or compensate homogenous groups of losers from those reforms.…”

The Domestic Rooting of Financial Regulation in an Era of Global Capital Markets

“…Proponents of this view argue that regulations are a means for politically powerful interest groups to capture rents from the state, creating market inefficiency or failure where there was none before (Stigler 1971;Peltzman 1976Peltzman , 1989. According to this view, regulations are of dubious social value, but strongly benefit those who are able to steer government policies in ways that protect their interests by limiting the competition they face.…”