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

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  • Jean-Jacques Laffont
  • Jean Tirole

Abstract

The paper develops 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; and (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). Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 506.

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Date of creation: Oct 1988
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Handle: RePEc:mit:worpap:506

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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  1. Regulatory capture in Wikipedia English ne '')
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