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Peltzman. 1976. Toward a more general theory of regulation. Understanding Printable version
Journal of Law and Economics 19: 211-240.
Bureaucracy
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1 In Brief Delegation
2 Main Argument Kiewiet and McCubbins
2.1 Equilibrium Epstein and O'Halloran
2.2 Deciding Whether to Lobby Moe
2.3 Deciding Whether to Counter-Mobilize
Congressional
3 Comments and Criticism Abdication
Lowi
Niskanen

Congressional Control
McCubbins, Noll, and
In Brief Weingast
McCubbins and Schwartz
Moe
Stigler's model of regulation gave a demand-side Weingast and Moran
explanation of regulatory politics--that is, an explanation
based on Olson's logic of collective action, showing that the Presidential Control
largest firms will lobby most effectively, resulting in Heclo
regulation that almost always favors producers over Moe
consumers. Neustadt

Peltzman seeks to update Stigler's theory to give it equal Outside the U.S.
attention to supply-side factors--that is, factors that might Eaton
motivate regulators to produce regulations that benefit Geddes
consumers even though producers lobby better. Peltzman's Huber and Shipan
Ramseyer and Rosenbluth
primary motivation is to replace Stigler's vague concept of a
"regulator" with the more concrete idea of a "legislator,"
with all the electoral motivations that implies. Regulatory Politics
Peltzman
Stigler
Peltzman's theory, then, presents a balanced theory of both
supply and demand of regulation. This theory specifies a
political equilibrium for a regulator (i.e. how much he
should bend to producers' demands).

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Main Argument
Stigler's theory had problems. It would not explain why Congress passes regulations that hurt

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Summary of Peltzman: Toward a more general theory of regulation - From WikiSummary, free summaries of academic books and articles

big businesses, or why protectionism is sometimes reduced. To obtain more realistic

conclusions, Peltzman modifies the theory. He begins with three main premises:

1. Regulation redistributes wealth;

2. Regulators (legislators) desire to remain in office--so legislation will always be written
to maximize political support (see Mayhew);
3. Interest groups compete by offering political support in exchange for favorable
legislation.

Note that "political support" might mean either money or votes. So if a proposed regulation
would increase prices, it has two effects on political support. Producers (at least those
affected by the regulation) would gain profits, so the legislators gain interest group support.
And consumers would have to pay more, so the legislators lose voter support. Winning takes
both money and votes, so legislators will balance these two types of support at an
equilibrium point that maximizes their chances of reelection.

Equilibrium

To say the same thing in more economic language, consider this process in terms of marginal
gains and marginal costs. Regulators want to be reelected. They base their decision about a
proposed regulation on marginal political costs and marginal political gains.

Marginal gains: Each additional amount of protection provided to an industry brings

the sorts of benefits Stigler talked about (campaign contributions from the big firms,
etc.). Marginal gains are weighted by the probability that beneficiaries will actually
support the regulator in the future.
Marginal costs: Increasing protection reduces consumers' surplus. In effect, it creates
an implicit tax (based on the size of the benefit transferred to producers and the
number of nonbeneficiaries in the population, among other things). (The implicit tax is
similar to a per-capita decline in consumer surplus). Marginal costs are weighted by
the probability that this implicit tax is large enough that consumers will vote against
the regulator in the future.

When marginal gains equal marginal costs, the regulator is at political equilibrium.

Deciding Whether to Lobby

In addition to the potential per-firm wealth transfer that the beneficiaries can enjoy, they
also consider the total costs of getting these regulations (costs of politically supporting the
regulator, costs of organizing to lobby). These firms may incur lobbying expenses for "voter
education" programs (to persuade voters to support their tariff or whatnot). An interest
group lobbies when the benefits exceed the costs.

Deciding Whether to Counter-Mobilize

Consumers rarely have an incentive to take action against the regulator (legislator); see
Olson.

Comments and Criticism

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Summary of Peltzman: Toward a more general theory of regulation - From WikiSummary, free summaries of academic books and articles

Stigler left the "regulator" in a black box. Peltzman improves on this by thinking of the
regulator as a legislator. But most regulation is done by executive agencies, not Congress.
Later research has emphasized the importance of legislative-bureaucratic interactions in
actually producing regulations--and this relationship might be just as important as the
relationships Stigler emphasizes.

Related Reading
The following summaries link (or linked) to this one:

Stevens: The economics of collective choice

Stigler: The theory of economic regulation
Weingast and Moran: Bureaucratic discretion or Congressional control

Keywords: Authors/Peltzman, Sam - Political Science - Economics - Regulation -

Interest Groups - Corruption - Rents

Last modified 14:40, 24 August 2007. Viewed 2,222 times.

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Summary of Peltzman: Toward a more general theory of regulation - From WikiSummary, free summaries of academic books and articles

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