In one sense, Stigler's work provides a theoretical foundation for this
"producer protection" view. However, its scope is much more general. It is
ultimately a theory of the optimum size of effective political coalitions set
within the framework of a general model of the political process. Stigler
seems to have realized that the earlier "consumer protection" model comes
perilously close to treating regulation as a free good. In that model the
existence of market failure is sufficient to generate a demand for regulation,
though there is no mention of the mechanism that makes that demand
effective. Then, in a crude reversal of Say's Law, the demand is supplied
costlessly by the political process. Since the good, regulation, is not in fact
free and demand for it is not automatically synthesized, Stigler sees the task
of a positive economics of regulation as specifying the arguments underlying
the supply and demand for regulation.
In one sense, Stigler's work provides a theoretical foundation for this
"producer protection" view. However, its scope is much more general. It is
ultimately a theory of the optimum size of effective political coalitions set
within the framework of a general model of the political process. Stigler
seems to have realized that the earlier "consumer protection" model comes
perilously close to treating regulation as a free good. In that model the
existence of market failure is sufficient to generate a demand for regulation,
though there is no mention of the mechanism that makes that demand
effective. Then, in a crude reversal of Say's Law, the demand is supplied
costlessly by the political process. Since the good, regulation, is not in fact
free and demand for it is not automatically synthesized, Stigler sees the task
of a positive economics of regulation as specifying the arguments underlying
the supply and demand for regulation.
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