EconLog

Regulatory Capture, 2002-07-09

One cynical view of economic regulators is that eventually they are "captured" by the interests that they are supposed to regulate. Bruce Baugh explains

All of this leads to the point where the regulatory agency may bristle and grr for the popular press, but its day-to-day business is strongly congruent with the interests of its subjects. At this point the regulatory agency has been captured, and once it happens, it's proved nearly impossible to fix. Any effort to abolish the agency and start over will be met with cries that someone wants to do away with any government oversight of the issue. Even mild efforts at changing the agency's composition or mission will get the same treatment,

The problem with industries governed by captured regulators is that they can resist competition. For example, imagine trying to start an automobile company today. You would need to hire more lawyers than engineers.

Discussion Question. How can we balance the desire to use regulation to protect consumers with the challenge of keeping regulatory agencies from being captured by industry cartels?