April, 2022

Regulatory capture and the dynamics of interventionism

The case of power utilities in Quebec and Ontario to 1944
  • Rosolino A. Candela

    Program Director, Academic and Student Programs
  • Germain Belzile

  • Vincent J. Geloso

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To what extent are the outcomes of economic regulation intended and desired by its proponents? To address that question, we combine Stigler’s theory of regulatory capture with the Austrian theory of the dynamics of interventionism. We reframe Stigler’s theory of regulatory capture as an analytical starting point for a dynamic theory of interventionism, one accounting for the unintended consequences that emerge from regulation, even if the origins of such regulation were designed to benefit a particular industry or special interest group. Therefore, we argue that regulatory capture is not necessarily inconsistent with a dynamic theory of intervention. We illustrate our theoretical point by applying it to an econometric case study of electric utility regulation and its eventual nationalization in both Ontario and Quebec in the early twentieth century, resulting in unintended and undesirable consequences that deviated from the interests of the regulation’s intended beneficiaries.