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The Efficiency Gains from Deregulation

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Abstract

We analyze the efficiency gains from deregulating monopolies using an equilibrium rent seeking model. McCormick, Shughart and Tollison (1984) argue that the initial effort to establish regulation dissipates the monopoly profit, limiting the gain from deregulation to the efficiency cost of monopoly. We establish conditions under which this proposition holds; in particular, the initial rent seekers must fail to anticipate the possibility of deregulation. Additionally, through application of the standard rent seeking model, we establish that the potential welfare gains exceed the cost of achieving deregulation. Our results provide support for policies aimed at eliminating monopoly and other types of economic distortion.

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Authors and Affiliations

  1. Department of Economics, University of Queensland, Brisbane, Qld, 4072, Australia

    Marc Poitras

  2. Department of Economics, University of Oklahoma, Norman, OK, 73019

    Daniel Sutter

Authors
  1. Marc Poitras
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  2. Daniel Sutter
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Poitras, M., Sutter, D. The Efficiency Gains from Deregulation. Journal of Regulatory Economics 12, 81–89 (1997). https://doi.org/10.1023/A:1007961904088

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  • DOI: https://doi.org/10.1023/A:1007961904088

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