Theories of Economic Regulation

Several theories have been advanced to explain the observed pattern of government regulation of the economy. These include the "public interest" theory and several versions, proposed either by political scientists or by economists, of the "interest group" or "capture" theory. This article analyzes those theories. It argues that the public interest theory and the political scientists' versions of the interest group theory are unacceptable in their present form. The economists' version of the interest group theory is discussed at greatest length; its theoretical and empirical foundations are reviewed, and the conclusion is reached that, while promising, the theory requires both more analytical development and new sorts of empirical investigation before it can be accepted as an adequate positive theory of regulation.