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

  • Jean-Jacques LAFFONT
  • Jean TIROLE

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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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 9004.

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Length: 52 pages
Date of creation: Jan 1990
Date of revision:
Publication status: Published in Quarterly Journal of Economics, vol.106, 1991, pp. 1089-1127
Handle: RePEc:lau:crdeep:9004
Contact details of provider: Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.20
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