Regulatory Capture

Question 1

Define Regulatory Capture

Answer 1

An economic theory that states regulatory agencies may come to be dominated by the industries or interests they are charged with regulating

Question 2

Causes of Regulatory Capture

Answer 2

Bribery

Familiarity - Bias increases over time

Revolving door - Regulators may work for companies they used to regulate

Question 3

Impacts of Regulatory Capture

Answer 3

Quality - Regulators do not enforce minimum standards

Price - Likely to be higher if the regulator has been captured

Externalities - Less likely to obey standards and policies if the regulator has been captured - affects third parties

Asymmetric Information