What is regulatory capture?
A)It is a situation in which a policymaker seeks to improve his election prospects by aligning himself with a powerful special interest group which will finance his political campaign.
B)It is the exchange of political support between a regulatory agency and the regulated firm resulting in both parties capturing economic rents.
C)It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.
D)It is a situation in which a regulatory agency uses its authority to force actions that are not favored by the regulated firms but are in the public's interest.

Question

Quizplus · Accepted Answer

Regulatory capture refers to a scenario in which a regulated firm, such as a monopoly, is able to influence the actions of the regulatory agency that oversees it so that it benefits the interests of the firm rather than the public interest. This can result in economic rents, or profits, being captured by both parties at the expense of consumers or the general public. Choice A refers to political capture, which is a different phenomenon, while choice D is the opposite of regulatory capture, where the regulatory agency is acting in the public interest despite resistance from regulated firms.

What Is Regulatory Capture