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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.

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4. Control over entry by new rivals.

airline

telecom

public transportation

licensing of professions

hospitalization

interest rate cartel

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5. Subsidies : culture/sports transportation

education healthcare

housing industry

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.

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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.

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H.K. Medical profession

H.K. Public Light Bus 1968 riots

Bus

Maxicabs

H.K. domestic servant immigration

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U.S. Trucking : original within city, poor roads & small trucks (change)

intercity freight - 1930 4% 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.

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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.

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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)