The theory of economic regulation
George J. Stigler
The Universityof Chicago
The potential usex of public resources and powers
to improve the
economic stuius of economic groups (such as industries and occupa-
tions) are analyzed to provide a scheme of the demand for regulation.
The characteristics of the political process which allow relatively small
groups to obtain such regulation is then sketched lo provide elemenls
of a theory of supply of regulation. A variety of empirical evidence and
illustration is also presented.
W The state—the machinery and power of the state—is a potential
resource or threat
to every industry in the society. With its power to
prohibit or compel,
to take or give money, the state can and does
selectively help or hurt a vast number of industries. That political
juggernaut,
the petroleum
industry,
is an immense consumer
of
political benefits,
and simultaneously
the underwriters
of marine
insurance have their more modest
repast. The central
tasks of the
theory of economic
regulation
are to explain who will receive the
benefits or burdens of regulation, what form regulation will take, and
the effects of regulation upon the allocation of resources.
Regulation may be actively sought by an industry, or it may be
thrust upon it. A central thesis of this paper is that, as a rule, regula-
tion is acquired by the industry and is designed and operated pri-
marily for its benefit. There are regulations whose net effects upon
the regulated
industry are undeniably onerous;
a simple example is
the differentially heavy taxation of the industry’s product
(whiskey,
playing cards). These onerous regulations,
however, are exceptional
and can be explained by the same theory that explains beneficial (we
may call it “acquired”)
regulation.
Two main alternative
views of the regulation
of industry
are
widely held. The first is that regulation is instituted primarily for the
protection and benefit of the public at large or some large subclass of
the public. In this view, the regulations which injure the public—as