1 Theory of Economic Regulation : G. Stigler Who gets benefit What form it takes Effects on resource allocation 1. Acquired primarily by industry for its.

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Presentation transcript:

1 Theory of Economic Regulation : G. Stigler Who gets benefit What form it takes Effects on resource allocation 1. Acquired primarily by industry for its benefit. 2. Not to protect public interest political process defies rational explanation. 3. Oil import quota : why not cash subsides. Adequate domestics supply of oil in case of war can be achieved by tariff.

2 4. Control over entry by new rivals. airline telecom public transportation licensing of professions hospitalization interest rate cartel

3 5. Subsidies : culture/sportstransportation educationhealthcare housingindustry usually does not aim to get money, unless the list of beneficiaries can be limited by an acceptable device. 6. Substitutes & complements : Chinese medicine 7. Price-fixing by coercive body.

4 Limitations upon Political Benefits 1. Small firm have larger influence. 2. Procedural & bureaucratic safeguards are costly. 3. Powerful outsiders into boards. Illustrate analysis The recourse to the regulatory process is more specific & complex. Defensive power of other industries affected by regulation must be taken into account.

5 H.K. Medical profession H.K. Public Light Bus 1968 riots Bus Maxicabs H.K. domestic servant immigration

6 U.S. Trucking : original within city, poor roads & small trucks (change) intercity freight % ton miles railroads sought state regulation of this competitor by dimensions and weight of trucks. X1 & X2 weight limit on 4- or 6- wheel trucks X3 (+) Trucks per 1000 agric labor force 1930 X4 (+) average length of railroad haul of freight traffic 1930 X5 (+) % of state roads with high quality surface.

7 The political process grants power to small vocal interests often at the expense of the diffuse public. Industry gets to the seller of regulation : political party. Pol. Party System : entry controlled, exact higher price for legislature. Free entry : price most close to costs of the party. Public officers : lawyer not doctors, extra political payments. Patronage not bribes as a form of payment. Bank & insurance affiliations. Occupational licensing : effect on initial year of state licensing in U.S.

8 Occupational Licensing (-) size of occupation - more votes (-) per capita income - index of probable rewards to political action (-) concentration of occupation in large cities - organization costs. Presence of cohesive occupation to licensing. - national vs. local markets. - not employed by business or employed by public (more opposition)