- Regulatory capture occurs when a regulator begins to see issues from the perspective of the industry it oversees, leading to helpful regulation for the industry but not for society.
- This can happen without any explicit corruption, as employees may not feel they are being bribed or acting unethically.
- Effective oversight should prevent problems with minimal friction, but a 'mutually optimal' situation where regulators and industry are both satisfied may not benefit society.
- Regular contact between regulators and industry, such as through job exchanges, can lead to a blending of perspectives and biased oversight.
- The food industry example shows how regulators may defend industry practices (e.g., high sugar content) by shifting blame to consumers (e.g., lack of exercise).
- The auto industry example illustrates how standardized crash tests can lead manufacturers to focus on passing specific tests rather than improving actual safety.
- Other examples include construction and banking, where regulation can be used to limit competition or focus on less painful issues.
- Regulatory capture is often denied, but recognizing its existence is the first step; simple solutions like term limits may not work effectively.
- A captured regulator can be worse than no regulation, as it wields government authority to legitimize harmful behavior.