Regulatory Capture
When the agencies meant to regulate an industry instead serve that industry’s interests. Select an agency to see its leaders, their industry connections, and evidence of capture.
Federal agency. Data from USASpending.gov.
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What is regulatory capture
Regulatory capture occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of the industry it is charged with regulating. The concept was formalized by economist George Stigler in his 1971 paper “The Theory of Economic Regulation,” for which he later received the Nobel Prize.
The academic literature identifies several predictable consequences of capture. Enforcement actions decline in frequency and severity. Rule-making increasingly favors incumbent firms over new entrants and consumers. Personnel move freely between the regulator and the regulated (the “revolving door”). Industry representatives dominate advisory panels and public comment processes.
Further reading
Stigler, G. J. (1971). “The Theory of Economic Regulation.” Bell Journal of Economics and Management Science, 2(1), 3-21.
Peltzman, S. (1976). “Toward a More General Theory of Regulation.” Journal of Law and Economics, 19(2), 211-240.
Carpenter, D. & Moss, D. A. (2013). “Preventing Regulatory Capture.” Cambridge University Press.
Kwak, J. (2013). “Cultural Capture and the Financial Crisis.” In Preventing Regulatory Capture, Cambridge University Press.