Regulatory Capture And Its Preventing

To be able to occur, cultural capture needs three mechanism, which Kwak lists as, identity (regulators´ likelihood to adopt positions of people whom they perceive as members of their group), status (regulators´ likelihood to adopt positions of people whom they perceive to be of higher social, economic, intellectual status and so on) and relationships (regulators´ likelihood to adopt positions of people who are present in their social networks). By using these mechanisms, the regulated industry is able to shape its regulators’ actions as well as beliefs. Usually, in nature these factor overlap, although there might be a situation that they can exist on their own. Additionally, each of these factors is a different psychological mechanism what emphasizes their individual importance in different contexts. Keeping it in mind, it is possible to conclude that group identification is crucial not only in personal life but also economic and political. It helps induce people to confirm their common expectations with which they identify.

As Kwak cites, “a person derives utility from her identity”. As an example, he provides the case of workers. If workers identify with the company they work for, the overall effort that they put into their work will be much higher. Although, according to social studies, one person is simultaneously a member of several groups, which influence her acts and beliefs at the same time. Furthermore, peoples´ behavior can be also affected by uncourteous selection among available identifications. Similarly as group identification, status also significantly affect behavior. Although there is no rational pattern of people choices considering status, the strong attention is paid by them to other people of much higher status which potentially they are willing to claim by themselves. There might be observed that people are behaving much nicer to high-status people and also they are more likely to adopt their behaviors and ideas. Kwak points that influence of status is especially important in situations when individuals´ self-learning process is extremely difficult or impossible. The last of mentioned above mechanisms is a relationship. The commonly known idea of a relationship was adapted to fit the political and economy area of studies. Similarly, as in personal relations, people are more favorably disposed towards someone who had done something for them.

As an example, Kwak provides the case of cashiers in the supermarket, when the individual cashier was more motivated by what the cashier behind her might think about her performance, but only if she was likely to interact with her in future. Traditional definition of capture the holds that every regulators´ act must be taken rationally. However, anybody,the even an agency employee, is not immune to relationship pressure. The specificity of cultural capture makes that it may be harder to protect against than from traditional capture. In the case of traditional capture, when the regulator who sides one interest group would still accept a better offer from another interest group. In further three chapter written by Nolan McCarty, Luigi Zingales and Carpenter, it is possible to find information about other variations of traditional regulatory capture. They focus their texts on the complexity of regulatory actors, economists´ capture and corrosive capture. Across the book, we can find the statement made by plenty of authors that “capture is not a constant” and that not every negative economic experience throughout the past decades was caused by agencies dominated by the interest they are supposed to regulate.

Additionally, McCarty comes to the conclusion that not every industry influence and participation in the regulatory process are bad. Zingales focuses his analysis and explanations on economists´ capture and on possible scenarios of how to prevent it. He questions, if every economist faces incentives, just like regulators do, what might be the reason to not to use them to capture. He develops the arguments and provides the evidence of capture of economists. He differentiates factors that can lead to it, which incentives are given by career concerns, obtained information, and environmental pressure. However, knowing how the capture is created does not ensure the easiness of fighting with it. There are plenty of ways which he discusses, such as general measures like the media power or indirect benefits of antitrust enforcement and specific measures like, as he calls it, “shaming economists without principles”, “mandatory disclose of expert witnesses”, “a data code” and more.

Additionally, he underlines that the most successful remedy for this problem is awareness which most economists still do not have. In the final chapter of the second section, Carpenter focuses on the more specific case which is corrosive capture explained with the example of the Food and Drug Administration (FDA) case. He specifies that the corrosive capture occurs when distinctly organized companies push the regulatory process in “weaker” direction. It means that the aim of this behavior is not to reduce entry but to reduce costly rules and enforcement actions that with time reduce firms´ profits.