George J. Stigler

Introduction  The state is a potential resource or threat to every industry in the society. Power to prohibit or compel, to take or to give. Can and does selectively help or hurt a vast number of industries.

Unique Power  The state has the power to coerce. Can seize money by the only method which is permitted by the laws of a civilized society: Taxation. Can order the physical movement of resources. Can determine the economic decisions of households and firms without their consent.

Central Tasks of The Theory of Economic Regulation  Who will receive the benefits or burdens of regulation.  What form the regulation will take.  The effects of regulation upon the allocation of resources.

Central Thesis  Regulation is acquired by an industry and is designed and operated primarily for its benefit.  Assumption: Political systems are rationally devised and rationally employed.

Alternative Views  Regulation is instituted primarily for the protection and benefit of the public at large or some large subclass of it.  The political process defies rational explanation.

What Benefits Can The State Provide an Industry?  Subsidies  Barriers to entry  Manipulation of substitutes and complements  Price controls

Quest For Legislation  Industry which seeks political power must go to the appropriate seller, the political party.  The political party has costs of: Operation Maintaining an organization Competing in elections

Costs of Obtaining Legislation  An industry which seeks regulation must be prepared to pay with the two things a party needs: votes and resources.  These costs typically increase with the size of the industry.

Limitations Upon Political Benefits  The distribution of control of the industry among the firms in the industry is changed.  Procedural safeguards required of public processes are costly.  Political process automatically admits powerful outsiders to the industry’s councils.

Analysis  Licensed occupations have higher incomes  The membership of the licensed occupations is more stable.

Conclusion  The preceding analysis of licensed and unlicensed occupations coincides with the central thesis of this paper. Regulation is sought by an industry primarily for its benefit.

References Stigler, George J. “The theory of economic regulation.” The Bell journal of economics and management science (1971): 3-21.