Toward a More General Theory of Regulation

52 Pages Posted: 15 Feb 2001 Last revised: 15 May 2022

See all articles by Sam Peltzman

Sam Peltzman

University of Chicago, Booth School of Business

Date Written: April 1976

Abstract

In previous literature, George Stigler asserts a law of diminishing returns to group size in politics: Beyond some point it becomes counterproductive to dilute the per capita transfer. Since the total transfer is endogenous, there is a corollary that dirninishing returns apply to the transfer as well, due both to the opposition provoked by the transfer and to the demand this opposition exerts on resources to quiet it. Stigler does not himself formalize this model, and my first task will be to do just this. My simplified formal version of his model produces a result to which Stigler gave only passing recognition, namely that the costs of using the political process limit not only the size of the dominant group but also their gains. This is at one level, a detail, which is the way Stigler treated it, but a detail with some important implications -- for entry into regulation, and for the price-output structure that emerges from regulation. The main task of the paper is to derive these implications from a generalization of Stigler's model.

Suggested Citation

Peltzman, Sam, Toward a More General Theory of Regulation (April 1976). NBER Working Paper No. w0133, Available at SSRN: https://ssrn.com/abstract=260323

Sam Peltzman (Contact Author)

University of Chicago, Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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