Toward a More General Theory of Regulation

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.

Public Opinion about Regulation

The paper describes how ordinary citizens view economic regulation and summarizes answers to questions about regulation and regulators since the 1970s from the General Social Survey. The pattern is clear: ordinary citizens are skeptical and wary. They want less regulation and do not trust regulators to do what is right. The mistrust has become stronger over time. However, the public supports environmental and electricity rate regulation. These sentiments are shared across age, sex, race, education, and income groups and the left/right ideological spectrum. The public tends to oppose less traditional regulation, such as wage and price controls, government ownership of some industries, and regulation of steel prices. But there is less consensus across demographic groups: blacks, the less educated, and low-income groups are less hostile, or marginally friendly, to less conventional modes of regulation. The paper concludes by contrasting public opinion with the path of regulation since the 1970s

Regulating Access to Developmental Drugs for Terminally Ill Patients: Abigail Alliance v FDA

This amicus brief was filed in support of the Abigail Alliance for Better Access to Developmental Drugs in their lawsuit to force the Food and Drug Administration to provide patient access to drugs for cancer and other life-threatening illnesses after those drugs have passed through phase 1 clinical testing and have received FDA approval to enter additional clinical trials as a basis for eventual FDA approval for marketing. We make three arguments: (1) FDA staff face strong incentives to be too cautious in approving new drugs. As demonstrated by experience in cancer drug testing, patients often face a situation in which high-quality data from phase 1 clinical trials strongly indicate that a drug's benefits probably exceed its risks. (2) Permitting terminally-ill patients to access potentially life-saving post-phase-1 drugs still in testing will not unduly discourage patient participation in additional trials or inhibit post-phase- randomized clinical trials needed to obtain FDA approval. This is evident from the widespread and growing phenomenon of post-approval randomized clinical trials of approved drugs. (3) For similar reasons, it is clear that permitting terminally-ill patients to access potentially life-saving post-phase-1 drugs in testing will not discourage manufacturers from conducting additional randomized clinical trials.Health and Safety, Other Topics

Self-interest And Public Interest: The Motivations Of Political Actors

Self-Interest and Public Interest in Western Politics showed that the public, politicians, and bureaucrats are often public spirited. But this does not invalidate public-choice theory. Public-choice theory is an ideal type, not a claim that self-interest explains all political behavior. Instead, public-choice theory is useful in creating rules and institutions that guard against the worst case, which would be universal self-interestedness in politics. In contrast, the public-interest hypothesis is neither a comprehensive explanation of political behavior nor a sound basis for institutional design

Regulation and the Evolution of Corporate Boards: Monitoring, Advising or Window Dressing?

An earlier version of this paper was entitled “Deregulation and Board Composition: Evidence on the Value of the Revolving Door.”It is generally agreed that boards are endogenously determined institutions that serve both oversight and advisory roles in a firm. While the oversight role of boards has been extensively studied, relatively few studies have examined the advisory role of corporate boards. We examine the participation of political directors on the boards of natural gas companies between 1930 and 1998. We focus on the expansion of federal regulation of the natural gas industry in 1938 and 1954 and subsequent partial deregulation in 1986. Using data sets covering the periods from 1930 to 1990 and 1978 to 1998, we test whether regulation and deregulation altered the composition of companies' boards as the firms' environment changed. In particular, did regulation cause an increase and deregulation a decrease in the number of political directors on corporate boards? We find evidence that the number of political directors increases as firms shift from market to political competition. Specifically, the regulation of natural gas is associated with an increase in the number of political directors and deregulation is associated with a decrease in the number of political directors on boards

Financing Direct Democracy: Revisiting the Research on Campaign Spending and Citizen Initiatives

The conventional view in the direct democracy literature is that spending against a measure is more effective than spending in favor of a measure, but the empirical results underlying this conclusion have been questioned by recent research. We argue that the conventional finding is driven by the endogenous nature of campaign spending: initiative proponents spend more when their ballot measure is likely to fail. We address this endogeneity by using an instrumental variables approach to analyze a comprehensive dataset of ballot propositions in California from 1976 to 2004. We find that both support and opposition spending on citizen initiatives have strong, statistically significant, and countervailing effects. We confirm this finding by looking at time series data from early polling on a subset of these measures. Both analyses show that spending in favor of citizen initiatives substantially increases their chances of passage, just as opposition spending decreases this likelihood

International Coercion, Emulation and Policy Diffusion: Market-Oriented Infrastructure Reforms, 1977-1999

Why do some countries adopt market-oriented reforms such as deregulation, privatization and liberalization of competition in their infrastructure industries while others do not? Why did the pace of adoption accelerate in the 1990s? Building on neo-institutional theory in sociology, we argue that the domestic adoption of market-oriented reforms is strongly influenced by international pressures of coercion and emulation. We find robust support for these arguments with an event-history analysis of the determinants of reform in the telecommunications and electricity sectors of as many as 205 countries and territories between 1977 and 1999. Our results also suggest that the coercive effect of multilateral lending from the IMF, the World Bank or Regional Development Banks is increasing over time, a finding that is consistent with anecdotal evidence that multilateral organizations have broadened the scope of the “conditionality” terms specifying market-oriented reforms imposed on borrowing countries. We discuss the possibility that, by pressuring countries into policy reform, cross-national coercion and emulation may not produce ideal outcomes.http://deepblue.lib.umich.edu/bitstream/2027.42/40099/3/wp713.pd