A Theory of Soft Capture
Capture of regulatory agencies by firms or other stakeholders has given rise to a rich literature, much of which is dominated by models in which the motivation for the welfare-reducing behavior is found in side-contracting (bribes, corruption), threats (blackmail, political support) or corresponding mechanisms for repeated games (reputation, career concerns, signaling for promotion). Notwithstanding, the empirical support for monetary corruption and 'revolving doors' is scarce and inconclusive. We propose an alternative and more intuitive model for regulatory capture that is based on information transmission and asymmetric information. In a three-tier model, a regulator is charged by a political principal to provide a signal for the type of a regulated firm. Only the firm can observe his type and the production of a correlated signal with a given accuracy is costly for the regulator. The firm can costlessly provide an alternative signal of lower accuracy that is presented to the regulator. In a self-enforcing equilibrium, the regulator transmits the firm-produced signal, internalizes its own savings in information cost and the firm enjoys higher information rents. The main feature of soft capture is that it is not based on a reciprocity of favors but on a congruence of interests between the firm and the regulator.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: Boulevard du Rectorat, 7, Batiment 31, boite 39, 4000 Liege|
Phone: + 32 (0) 4 366 31 08
Fax: + 32 (0) 4 366 31 06
Web page: http://www2.ulg.ac.be/crepp/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peltzman, Sam, 1976.
"Toward a More General Theory of Regulation,"
Journal of Law and Economics,
University of Chicago Press, vol. 19(2), pages 211-40, August.
- Yolande Hiriart & David Martimort, 2012.
"How much discretion for risk regulators?,"
RAND Journal of Economics,
RAND Corporation, vol. 43(2), pages 283-314, 06.
- David Martimort, 1999. "The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 929-947.
- Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
When requesting a correction, please mention this item's handle: RePEc:rpp:wpaper:1107. 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: (Mathieu Lefebvre)
If references are entirely missing, you can add them using this form.