Authors libby rittenberg 868

The Public Choice Theory of Regulation The public interest theory of regulation assumes that regulations serve the interests of consumers by restricting the harmful actions of business firms That assumption, however, is now widely challenged by advocates of the public choice theory of regulation, which rests on the premise that all individuals, including public servants, are driven by self-interest They prefer thecapture theory of regulation, which holds that government regulations often end up serving the regulated firms rather than their customers Competing firms always have an incentive to collude or operate as a cartel The public is protected from such collusion by a pervasive incentive for firms to cheat Capture theory asserts that firms seek licensing and other regulatory provisions to prevent other firms from entering the market Firms seek price regulation to prevent price competition In this view, the regulators take over the role of policing cartel pricing schemes; individual firms in a cartel would be incapable of doing so themselves Because it is practically impossible for the regulatory authorities to have as much information as the firms they are regulating, and because these authorities often rely on information provided by those firms, the firms find ways to get the regulators to enforce regulations that protect profits The regulators get “captured” by the very firms they are supposed to be regulating In addition to its use of the capture theory, the public choice theory of regulation argues that employees of regulatory agencies are not an exception to the rule that people are driven by self-interest They Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 868