________ predicts that regulation initially will be found where there are market imperfections and over time will evolve to serve the interests of the regulated industry.

Question

Quizplus · Accepted Answer

Capture theory argues that regulation gradually evolves to be in favor of the industry it regulates because the regulators become influenced and even controlled by the regulated industry. This happens because the regulated industries have more resources to actively lobby the regulators and will often be more vocal in the regulatory process. As a result, regulation will initially be found in areas with market imperfections but may gradually evolve to serve the interests of the regulated industry. Adverse selection and asymmetric information do not directly relate to regulatory capture, and rent-seeking theory explains how individuals or firms try to use the regulation for their own benefit.

________ Predicts That Regulation Initially Will Be Found Where There