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“The theory of economic regulation” after 50 years

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  • Sam Peltzman

    (University of Chicago)

Abstract

George Stigler’s “The Theory of Economic Regulation” (Bell J Econ Manag Sci 2(1):3–21, 1971) is a landmark in the economics of regulation. It used simple public choice reasoning to set out the “capture theory” of regulation whereby “… as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.” This article, summarizes the context within which Stigler (1971) appeared and evaluates its long run impact. A central argument is the need to distinguish “acquired” from “designed and operated.” The rule that regulation is produced in response to industry pressure seems honored mainly in the breach. Maintenance of the institutional status quo seems the more common industry goal. However, once the status quo is altered, the industry interest will, as Stigler argued, receive disproportionate weight. I discuss and analyze the varying impact of industry interests over three significant regulatory transitions—in transportation, pharmaceuticals and banking. I conclude that the durable impact of Stigler (1971) comes from the public choice framing and the consequent importance of organized interests to analysis of regulation.

Suggested Citation

  • Sam Peltzman, 2022. "“The theory of economic regulation” after 50 years," Public Choice, Springer, vol. 193(1), pages 7-21, October.
    • Handle: RePEc:kap:pubcho:v:193:y:2022:i:1:d:10.1007_s11127-022-00996-0
    DOI: 10.1007/s11127-022-00996-0
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    References listed on IDEAS

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    1. DiMasi, Joseph A. & Grabowski, Henry G. & Hansen, Ronald W., 2016. "Innovation in the pharmaceutical industry: New estimates of R&D costs," Journal of Health Economics, Elsevier, vol. 47(C), pages 20-33.
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    3. Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1089-1127.
    4. Peltzman, Sam, 1993. "George Stigler's Contribution to the Economic Analysis of Regulation," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 818-832, October.
    5. Richard A. Posner, 1971. "Taxation by Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 22-50, Spring.
    6. Sam Peltzman, 1989. "The Economic Theory of Regulation after a Decade of Deregulation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989 Micr), pages 1-59.
    7. Weingast, Barry R & Moran, Mark J, 1983. "Bureaucratic Discretion or Congressional Control? Regulatory Policymaking by the Federal Trade Commission," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 765-800, October.
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    Cited by:

    1. Arthur Schram & Aljaž Ule, 2024. "Regulatory independence may limit electoral holdup but entrench capture," Public Choice, Springer, vol. 198(3), pages 403-425, March.
    2. Craig J. Richardson & Zachary D. Blizard, 2023. "Did the 2010 Dodd–Frank Banking Act deflate property values in low-income neighborhoods?," Public Choice, Springer, vol. 197(3), pages 433-454, December.
    3. Diana W. Thomas & Michael D. Thomas, 2022. "George stigler’s theory of economic regulation at 50 - introduction to a special issue," Public Choice, Springer, vol. 193(1), pages 1-5, October.
    4. Timothy Fitzgerald, 2024. "Regulatory capture in a resource boom," Public Choice, Springer, vol. 198(1), pages 93-127, January.
    5. Bezencry, Gabriel F. & Jensen, Nicholas & Smith, Daniel J., 2024. "The Socialists’ Hypotheses and The Road to Serfdom," SocArXiv vad37_v1, Center for Open Science.
    6. Edward Peter Stringham, 2023. "Banking regulation got you down? The rise of fintech and cryptointermediation in Africa," Public Choice, Springer, vol. 197(3), pages 455-470, December.
    7. Daniel J. Smith & Macy Scheck, 2023. "Examining the public interest rationale for regulating whiskey with the pure food and drugs act," Public Choice, Springer, vol. 196(1), pages 85-122, July.
    8. Bernardo Carvajal Sánchez (Editor) & Aníbal Zarate Pérez (Editor), 2023. "Balance y desafíos del Estado regulador, supervisor, promotor y empresario: XXIV Jornadas Internacionales de Derecho Administrativo. Tomo I, Acción pública económica y Estado regulador," Books, Universidad Externado de Colombia, Facultad de Derecho, number 1390, August.
    9. Bezencry, Gabriel F. & Jensen, Nicholas & Smith, Daniel J., 2024. "The Socialists’ Hypotheses and The Road to Serfdom," SocArXiv vad37, Center for Open Science.

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    More about this item

    Keywords

    Regulation; Capture; Interest groups; Political economy; Public choice; George stigler;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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