The Benefits of Capture

Abstract:     
Observers of the administrative state warn against “capture” of administrative agencies and lament its disastrous effects. This article suggests that the term “capture”, applied to a close relationship between industry and regulator, is not useful – by stigmatizing that relationship, judging it as problematic from the start, it hides its potential benefits. The literature on “capture” highlights its negative results – lax enforcement of regulation; weak regulations; illicit benefits going to industry. However, this picture is incomplete and in substantial tension with another current strand of literature which encourages collaboration between industry and regulator. The collaboration literature draws on the fact that industry input into the regulatory process has important benefits for the regulatory state. Industry usually has information no one else has, and has more incentive to give that information to a friendly regulator. Furthermore, working with industry can substantially improve the impact of regulation; voluntary compliance is cheaper and can be more effective than enforced compliance, and industry can help regulators minimize negative unintended consequences. This paper suggests that instead of engaging in name-calling, we should focus on identifying when a close industry-regulator relationship will work in the public interest, and when it is likely to undermine it. That is an empirical question.

Number of Pages in PDF File: 43

Keywords: regulation, capture

JEL Classification: G18, K23, L43, L51

Accepted Paper Series