Rethinking regulatory capture

Agrell, Per Joakim [UCL] Gautier, Axel [UCL]

Conventional capture models rely on the idea that regulator is induced to lenient behavior by the regulated firm through offers of monetary transfers, the bribery model, or future employment, the revolving doors model. To avoid socially costly capture, the political principal should then either implement collusion-proof mechanisms through the delegation of welfare gains, or severely restrict the career paths of regulatory staff. The paradox of capture is that neither the two modes of capture, nor the remedy are commonly found in practice. This paper proposes to rethink capture based on the widespread use of industry-commissioned consultants, experts and lobbyists that produce information for regulatory and policy use. A small model (Agrell and Gautier, 2010) introduces a 'soft capture' concept based on a self-enforced collusion between the firm and regulator, linked to the role of the regulator as information-processing intermediate for the political principal. The firm puts processed but biased information at the free disposal of the regulator, 'no strings attached', who can then either use the submitted information or produce a more accurate information by a costly process. Under a set of mild conditions, the equilibrium involves soft capture and the regulator uses the submitted information, leading to some distortions in welfare. A case study of the Occupational Safety and Health Administration (OSHA) in USA serves to motivate and illustrate the model. As shown by the case, the soft capture model may have a stronger positive potential than the conventional models, also implying that policy advice based on it may be valuable.