Regulatory Capture
Regulatory capture is an economic theory that says regulatory agencies may come to be dominated by the industries or interests they are charged with regulating. The result is that an agency, charged with acting in the public interest, instead acts in ways that benefit incumbent firms in the industry it is supposed to be regulating.
Definition: Regulatory capture is an economic theory that suggests regulatory agencies may be dominated by the industries or interests they are supposed to regulate. As a result, an agency that is supposed to act in the public interest instead acts in ways that benefit the existing firms in the industry.
Origin: The theory of regulatory capture was first proposed by economist George Stigler in 1971. In his book 'The Theory of Economic Regulation,' he detailed this concept, highlighting that regulatory agencies might favor the industries they regulate due to reasons such as information asymmetry, resource constraints, and industry lobbying.
Categories and Characteristics: Regulatory capture can be divided into two categories: 1. Direct capture, where the regulatory agency's decisions are directly influenced by industry interests; 2. Indirect capture, where public opinion or the policy-making process is influenced to indirectly affect the regulatory agency. Its characteristics include: 1. Regulatory policies favoring industry interests; 2. Public interest being compromised; 3. Inefficiency in regulation.
Specific Cases: 1. U.S. Financial Crisis (2008): Prior to the financial crisis, U.S. financial regulatory agencies were seen as overly reliant on information and advice from the financial industry, leading to inadequate regulation and eventually the crisis. 2. Japanese Nuclear Regulation: After the Fukushima nuclear disaster, it was found that Japan's nuclear regulatory agency had long been influenced by the nuclear power industry, failing to effectively supervise and manage nuclear plant safety.
Common Questions: 1. How to identify regulatory capture?: It can be identified by observing whether the regulatory agency's decisions are overly biased towards industry interests. 2. How to prevent regulatory capture?: It can be prevented by increasing transparency, enhancing public participation, and establishing independent oversight bodies.
