Advanced Search
MyIDEAS: Login to save this paper or follow this series

Corporations and Regulators: The Game of Influence in Regulatory Capture

Contents:

Author Info

  • Dominic K. Albino
  • Anzi Hu
  • Yaneer Bar-Yam
Registered author(s):

    Abstract

    In a market system, regulations are designed to prevent or rectify market failures that inhibit fair exchange, such as monopoly or transactions with hidden costs. Because regulations reduce profits to those possessing unfair advantage, these advantaged corporations (whether individuals, companies, or other collective organizations) are motivated to influence regulators. Regulatory bodies created to protect the market are instead co-opted to advance the interests of the corporations they are charged to regulate. This wide-spread influence, known as "regulatory capture," has been recognized for over 100 years, and according to expectations of rational behavior, will exist wherever it is in the mutual self-interest of corporations and regulators. Here we model the interaction between corporations and regulators using a new game theory framework explicitly accounting for players' mutual influence, and demonstrate the incentive for collusion. Communication between corporations and regulators enables them to collude and split the resulting profits. We identify when collusion is profitable for both parties. The intuitive results show that capture occurs when the benefits to the corporation outweigh the costs to the regulator. Under these conditions, the corporation can compensate the regulator for costs incurred and, further, provide a profit to both parties. In the real world, benefits often far outweigh costs, providing large incentives to collude and making capture likely. Regulatory capture is inhibited by decreasing the influence between parties through strict separation, independent market knowledge and research by regulators, regulatory and market transparency, regulatory accountability for market failures, widely distributed regulatory control, and anti-corruption enforcement.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/1310.0057
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1310.0057.

    as in new window
    Length:
    Date of creation: Sep 2013
    Date of revision:
    Handle: RePEc:arx:papers:1310.0057

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:1310.0057. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.