Regulatory capture

From Wikipedia, the free encyclopedia

Regulatory capture is a phenomenon in which a government regulatory agency becomes dominated by the interests of the existing incumbents in the industry that it oversees. In the United States, the most notorious historical examples are the Civil Aeronautics Board, which protected airlines from competition; the Interstate Commerce Commission, known as the "trucker's best friend," which restricted competition in transportation; and the Department of Agriculture, which implements policies that are alleged to favor the interests of large corporate farming concerns over those of consumers and family farmers. The term is central in a stream of research that is often referred to as the economics of regulation, which is critical of earlier conceptualizations of regulatory intervention by governments as being motivated to protect public goods. Two often cited articles are Laffont & Tirole (1991) and Levine & Forrence (1990).

1 A modern example
2 Current concerns
3 See also
4 References

[edit] A modern example

In many regions of the United States, some local municipalities are attempting to implement free or advertising–supported wireless internet services (usually via the protocol known as WiFi). In some states, such as Pennsylvania and others, the dominant telecommunications providers have written laws to be introduced and passed by compliant state legislators to prohibit such public services. Such State control is enabled by the de jure regulatory powers of the State, while the telecommunications industry de facto control is enabled (according to some arguments) largely by lobbying, campaign contributions, sponsored transportation and trips to exotic locales for legislators and possibly other less legitimate means such as stock tips (although any connection between contributed money and benefits and an effect upon legislation is always denied by all of the parties so involved).

[edit] Current concerns

Of particular concern in the early 21st century is the possible regulation of the internet with respect to net neutrality. Various proposals have been made by some economic interests to prohibit charges to content originators by carriers (internet service providers) based upon bandwidth consumption (the amount of traffic generated) and to prohibit discrimination in the level of service provided. Carriers argue that since they must finance the capital costs of improved delivery mechanisms, that the providers of material should bear the cost of delivery. Content providers argue that the cost is paid for by the consumer through expensive cable, digital subscriber line, and broadband wireless fees, with the principal argument being centered about favoritism and discrimination, in that certain delivery services may be connected financially to content providers, whom the carriers could then favor while discriminating against outside providers. The most effective form of discrimination would be for the carriers to provide slower service to uncooperative outside providers (providers not owned by or paying a toll to the carrier).

The danger of any regulatory action to enforce net neutrality is that the regulatory process would become captured by one or even both of the factions involved, who could then apply pressure upon the regulators by their influence upon the political process. Who would remain without significant influence in this process would be the consumers, who (it is argued) are at present becoming quite powerful in many locales by their ability to change providers (although generally only within a duopoly of cable TV internet or telephone DSL services). The ease of switching has gradually increased since third party e-mail services, free home pages in social networks, and customer controlled personal web sites allow the switch with few side effects, such as the need to notify all correspondents of a new address and additional access methods such as access by radio (WiFi) and satellite methods are gradually improving. The argument against regulation centers upon the consumer's ability to switch (as a countervailing force) and the likelihood of regulatory capture by the politically and financially powerful non-consumer interests involved.

Whether the industry has competition or is a monopoly is a key factual question underpinning the arguments over the danger of regulatory capture; the power which could be exerted through regulatory capture is generally already possessed by a monopoly.

[edit] See also

[edit] References

Laffont, J. J., & Tirole, J. 1991. The politics of government decision making. A theory of regulatory capture. Quarterly Journal of Economics, 106(4): 1089-1127
Levine, M. E., & Forrence, J. L. 1990. Regulatory capture, public interest, and the public agenda. Toward a synthesis. Journal of Law Economics & Organization, 6: 167-198