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.