george j. stigler. introduction the state is a potential resource or threat to every industry in...
TRANSCRIPT
THE THEORY OF ECONOMIC
REGULATION
George J. Stigler
Introduction
The state is a potential resource or threat to every industry in the society.
Power to prohibit or compel, to take or to give.
Can and does selectively help or hurt a vast number of industries.
Unique Power
The state has the power to coerce.
Can seize money by the only method which is permitted by the laws of a civilized society: Taxation.
Can order the physical movement of resources.
Can determine the economic decisions of households and firms without their consent.
Central Tasks of The Theory of Economic Regulation
Who will receive the benefits or burdens of regulation.
What form the regulation will take.
The effects of regulation upon the allocation of resources.
Central Thesis
Regulation is acquired by an industry and is designed and operated primarily for its benefit.
Assumption: Political systems are rationally devised and rationally employed.
Alternative Views
Regulation is instituted primarily for the protection and benefit of the public at large or some large subclass of it.
The political process defies rational explanation.
What Benefits Can The State Provide an Industry?
Subsidies
Barriers to entry
Manipulation of substitutes and complements
Price controls
Quest For Legislation
Industry which seeks political power must go to the appropriate seller, the political party.
The political party has costs of:OperationMaintaining an organizationCompeting in elections
Costs of Obtaining Legislation
An industry which seeks regulation must be prepared to pay with the two things a party needs: votes and resources.
These costs typically increase with the size of the industry.
Limitations Upon Political Benefits
The distribution of control of the industry among the firms in the industry is changed.
Procedural safeguards required of public processes are costly.
Political process automatically admits powerful outsiders to the industry’s councils.
Analysis
Licensed occupations have higher incomes
The membership of the licensed occupations is more stable.
Conclusion
The preceding analysis of licensed and unlicensed occupations coincides with the central thesis of this paper.
Regulation is sought by an industry primarily for its benefit.
References
Stigler, George J. “The theory of economic regulation.” The Bell journal of economics and management science (1971): 3-21.