Classic public choice skepticism about the regulatory state, based on theories of rent-seeking, rent extraction and regulatory capture, is based on the unrealistic, and usually unstated, assumption of a monopolist regulator. In practice, the regulatory state is polycentric, involving numerous quasi-independent agencies with overlapping responsibilities. This has led to a more optimistic picture based on the idea of regulatory arbitrage: when firms can, to some extent, pick and choose their preferred regulator, regulatory agencies are constrained to deliver relatively efficient regulatory policies. In our view, this optimism is also unrealistic. We build a family of models that explores the possible regulatory outcomes, and use some aspects of Gordon Tullock’s critique of the common law as a conceptual foundation for the analysis of the efficiency of a polycentric regulatory system.
KeywordsRegulatory capitalism Polycentricity Common law Rent-seeking Certification markets
JEL ClassificationD72 H77 P16
We thank Jerry Ellig, Patrick McLaughlin, Matt Mitchell, and William Shughart II for very useful feed-back and suggestions.
- Aligica, P. D., Boettke, P. J., & Tarko, V. (2019). Public governance and the classical liberal tradition. Oxford: Oxford University Press.Google Scholar
- Aligica, P. D., & Tarko, V. (2015). Capitalist alternatives: Models, taxonomies, scenarios. London, New York: Routledge.Google Scholar
- Autor, D., Dorn D., Katz, L. F., Patterson, C., & Van Reenen, J. (2017). Concentrating on the fall of the labor share. Working paper 23108. National Bureau of Economic Research. https://doi.org/10.3386/w23108.
- Boettke, P. J. (1995). Hayek’s The Road to Serfdom revisited: Government failure in the argument against socialism. Eastern Economic Journal, 21(1), 7–26.Google Scholar
- Broughel, J. (2017). Regulation and economic growth. Arlington, VA: Mercatus Center.Google Scholar
- Buchanan, J. M. (1980). Rent seeking and profit seeking. In Toward a theory of the rent-seeking society. Texas A&M University Press.Google Scholar
- Buchanan, J. M., Tullock, G., & Tollison, R. (Eds.). (1980). Toward a theory of the rent-seeking society. College Station, TX: Texas A&M University Press.Google Scholar
- Congleton, R. D., & Hillman, A. L. (Eds.). (2015). Companion to the political economy of rent seeking. Northampton, MA: Edward Elgar Pub.Google Scholar
- Congleton, R. D., Hillman, A. L., & Konrad, K. A. (Eds.). (2008). 40 years of research on rent seeking. Berlin: Springer.Google Scholar
- Cowen, T. (2011). The great stagnation. Harmondsworth: Penguin.Google Scholar
- Cowen, T. (2017). The complacent class. New York: St. Martin’s Press.Google Scholar
- Douglas, G. W., & Miller, J. C. (1974). Economic regulation of domestic air transport. Washington: Brookings Institution.Google Scholar
- Dudley, S. E., & Brito, J. (2012). Regulation: A primer (2nd ed.). Washington, DC: Mercatus Center at George Mason University and George Washington University Regulatory Studies Center.Google Scholar
- Geradin, D., & McCahery, J. A. (2004). Regulatory co-opetition: Transcending the regulatory competition debate. In J. Jordana & D. Levi-Faur (Eds.), The politics of regulation. Cheltenham, UK; Northampton, MA: Edward Elgar.Google Scholar
- Goetz, G. (2010). Who inspects what? A food safety scramble. Food Safety News. December 16, 2010. http://www.foodsafetynews.com/2010/12/who-inspects-what-a-food-safety-scramble/.
- Grullon, G., Larkin, Y., & Michaely, R. (2017). Are US industries becoming more concentrated? Working paper, https://papers.ssrn.com/abstract=2612047.
- Guy, A. (2016). You’re probably eating Asian catfish without knowing it. Should you be worried? Oceana. September 13, 2016. https://oceana.org/blog/you%E2%80%99re-probably-eating-asian-catfish-without-knowing-it-should-you-be-worried.
- Gwartney, J. D., Lawson, R., & Hall, J. (2018). Economic freedom of the world: 2018 annual report. Vancouver: The Fraser Institute.Google Scholar
- Hayek, F. A. (1944). The road to serfdom. Chicago: University of Chicago Press.Google Scholar
- Heller, M. (2008). The gridlock economy: How too much ownership wrecks markets, stops innovation, and costs lives. New York: Basic Books.Google Scholar
- Jordana, J., & Levi-Faur, D. (Eds.). (2004). The politics of regulation: Institutions and regulatory reforms for the age of governance. Cheltenham, UK; Northampton, MA, USA: Edward Elgar.Google Scholar
- Lindsey, B., & Teles, S. (2017). The captured economy: How the powerful enrich themselves, slow down growth, and increase inequality. New York, NY: Oxford University Press.Google Scholar
- McChesney, F. S. (1997). Money for nothing: Politicians, rent extraction, and political extortion. Cambridge, MA: Harvard University Press.Google Scholar
- Meltzer, A. H. (2012). Why capitalism?. Oxford, New York: Oxford University Press.Google Scholar
- Olson, M. (1982). The rise and decline of nations. New Haven: Yale University Press.Google Scholar
- Ostrom, V. (1991). Polycentricity: The structural basis of self-governing systems. In The meaning of American federalism, 223–248. San Francisco, CA: ICS Press.Google Scholar
- Peltzman, S. (1989). The economic theory of regulation after a decade of deregulation. In Brookings papers on economic activity, 1–41. Washington, DC: Brookings Institution.Google Scholar
- Posner, R. A. ( 2003). The economic analysis of law (6th edn.). New York: Aspen.Google Scholar
- Shughart II, W. F. (2018). Gordon Tullock’s critique of the common law. Independent Review, 23(2).Google Scholar
- Steele, C., & Bowman, J. (1987). The constitutionality of independent regulatory agencies under the necessary and proper clause: The case of the Federal Election Commission. Yale Journal on Regulation, 4(2), 363–392.Google Scholar
- Stigler, G. J. (1971). The theory of economic regulation. The Bell Journal of Economics and Management Science, pp. 3–21.Google Scholar
- Tullock, G. (1971). The logic of the law. New York: Basic Books.Google Scholar
- Tullock, G. (1980a). Efficient rent seeking. In J. M. Buchanan, R. D. Tollison, & G. Tullock (Eds.), Toward a theory of the rent-seeking society (pp. 97–112). College Station: Texas A&M University Press.Google Scholar
- Tullock, G. (1980b). Trials on trial: The pure theory of legal procedure. New York: Columbia University Press.Google Scholar
- Tullock, G. (1991). Rent seeking. In The new Palgrave: The world of economics, (pp. 604–609). New York, London: W.W. Norton.Google Scholar
- Tullock, G. (2005a). Law and economics. Indianapolis: Liberty Fund.Google Scholar
- Tullock, G. (2005b). The rent-seeking society. Indianapolis: Liberty Fund.Google Scholar
- Viscusi, W. K. (1996). Regulatory reform and liability for pharmaceuticals and medical devices. In Advancing medical innovation: Health, safety and the role of government in the 21st century. Washington, DC: Progress and Freedom Foundation.Google Scholar
- Vogel, S. K. (1996). Freer markets, more rules: Regulatory reform in advanced industrial countries. Ithaca, London: Cornell University Press.Google Scholar
- Wagner, R. E. (1989). To promote the general welfare: Market processes vs. political transfers. San Francisco, CA: Pacific Research Inst for Public.Google Scholar
- Wagner, R. E. (2009). Property, state, and entangled political economy. In Markets and politics (pp. 37–49). Marburg: Metropolis.Google Scholar
- Williamson, O. E. (1996). The mechanisms of governance. Oxford, New York: Oxford University Press.Google Scholar