Stigler’s economic regulation theory explains how interest groups use government regulatory power to advance their economic needs. Large corporations tend to win conflicts with smaller organizations and consumers due to their greater political power. The theory examines the methods of government regulation, including direct subsidies and protectionism. Critics argue that regulators have their own motivations that can lead them to act differently than predicted.
Economic regulation theory is an economic theory developed by George Stigler. It is intended to explain ‘supply’, ‘demand’ and the practical use of government regulatory power over the economy. In particular, Stigler examines the various ways in which different interest groups are able to influence and use the power of government to advance their own economic needs. The theory also examines the connection between corporate and consumer demand for regulation. Economic regulation theory states that, when conflicts arise between these two groups, large companies almost always win because, for various reasons, they have much more political power.
Stigler’s theory of economic regulation treats government regulation as a commodity in itself, subject to its own laws of “supply” and “demand.” Many different interest groups, ranging from large oil companies to small environmental organizations to general consumers, often seek government regulation. Such regulation is generally intended to provide some benefit or correct a detriment to the interest group concerned. Groups with greater organizational power and resources are, in general, able to secure more government regulation in their favor.
According to economic regulation theory, large corporations are almost always able to provide regulation that is beneficial to smaller organizations and consumers. Big companies have more resources to work with and are better able to organize effective collective movements. Smaller organizations and consumers do not tend to organize collective actions due to the expense of doing so and the relatively small potential benefits.
Some of the possible methods of government regulation are also examined in economic regulation theory. Two main methods are direct subsidies and protectionist regulation. Direct grants offer short-term benefits, but they also encourage new businesses to enter a particular sector, thus creating more competition. Protectionism, on the other hand, is deliberately created to create barriers to entry into a particular sector. This protects businesses from potentially costly competition.
The criticism against economic regulation theory mainly involves its relative contempt for the supply of regulation. Economic regulation theory focuses largely on the motivations and methods of those demanding economic regulation. Regulators, however, have their own motivations that can lead them to act differently than large-scale influence predicts. In general, regulators seek political support and want reelection, campaign finance, and other benefits. In some cases, supporting smaller organizations or consumers can offer these benefits when large companies cannot be helped.
Protect your devices with Threat Protection by NordVPN
