The Politics of Government Decision-Making: A Theory of Regulatory Capture

Year Published 2000
Business unit: Special Projects
Resource type: Discussion papers
File type: PDF
Theme(s): Economic Development, Finance, Policy analysis

Description

In this paper published in the Quarterly Journal of Economics, Jean-Jacques Laffont and Jean Tiroles develop an agency-theoretic approach to interest-group politics and shows the following: (1) the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation. (2) The threat of producer protection leads to low-powered incentive schemes for regulated firms. (3)Consumer politics may induce uniform pricing by a multiproduct firm. (4) An interest group has more power when its interest lies in inefficient rather than efficient regulation, where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal (Congress).

Submit a Comment

Your email address will not be published.