Toward a more general theory of regulation

S Peltzman - The Journal of Law and Economics, 1976 - journals.uchicago.edu
The Journal of Law and Economics, 1976journals.uchicago.edu
George Stigler's work on the theory of regulation is one of those rare contributions-rare for
the rest of us, though not for him-which force a fundamental change in the way important
problems are analyzed. Stigler's influence will be clear in this article. There is perhaps no
more telling evidence of this influence than that its basic motivation was my dissatisfaction
with some of Stigler's conclusions.(It was a dissatisfaction that Stigler shared, since I can
report that we simultaneously reached one of the conclusions elaborated here-that …
George Stigler's work on the theory of regulation is one of those rare contributions-rare for the rest of us, though not for him-which force a fundamental change in the way important problems are analyzed. Stigler's influence will be clear in this article. There is perhaps no more telling evidence of this influence than that its basic motivation was my dissatisfaction with some of Stigler's conclusions.(It was a dissatisfaction that Stigler shared, since I can report that we simultaneously reached one of the conclusions elaborated here-that regulatory agencies will not exclusively serve a single economic interest.) My intellectual debt to Stigler is so great that this article emerges as an extension and generalization of his pioneering work. What Stigler accomplished in his Theory of Economic Regulation was to crystallize a revisionism in the economic analysis of regulation that he had helped launch in his and Claire Friedland's work on electric utilities.'The revisionism had its genesis in a growing disenchantment with the usefulness of the traditional role of regulation in economic analysis as a deus ex machina which eliminated one or another unfortunate allocative consequence of market failure. The creeping recognition that regulation seemed seldom to actually work this way, and that it may have even engendered more resource misallocation than it cured, forced attention to the influence which the regulatory powers of the state could have on the distribution of wealth as well as on allocative efficiency. Since the political process does not usually provide the dichotomous treatment of resource allocation and wealth distribution so beloved by welfare economists, it was an easy step to seek explanation for the failure of the traditional analysis to predict the allocative effects of regulation in the dominance of political pressure for redistribution on the regulatory process. This focus on regulation as a powerful engine for
* This study has been supported by a grant from the National Science Foundation to the National Bureau of Economic Research for research in law and economics. The paper is not an official Bureau publication since it has not yet undergone the full critical review accorded Bureau publications, including review by the Bureau's Board of Directors. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
The University of Chicago Press