George Stigler 50 Years Later: Part 1 - George Stigler's Contribution and Lasting Impact

good morning from chicago and thank uh thank you all for joining us my name is chris wheat and i'm director of the george j steeler center for the study of the economy and the state at the university of chicago booth school of business we are excited to begin our two-day symposium commemorating the 50th anniversary of the publication of george ziegler's seminal article the theory of economic regulation through a series of conversations with distinguished academics including colleagues and students of george stiegler we will examine his theory's legacy past present and future today we will focus on speaker's contribution and lasting impact exploring how his insights influence generations of scholars and considering what some of his most significant contributions to academia and policymaking might be tomorrow on april 20th we will discuss whether and how the theory of regulatory capture should evolve to reflect today's market and political dynamics as a part of the symposium we invite you to read a series of perspectives on the work of george ziegler on promarket.org our publication there you will find pieces from many of this week's panelists with new pieces being posted throughout the month of april to kick off the symposium we are happy to host professors andre cipher and paula sapienza for a keynote conversation which will be followed by a larger panel conversation at 12 30 central before we begin please note that we are on the record and we will post the video on our youtube channel later later this week if you have questions for the speakers we will aim to address them in our limited time you can submit them via the q a icon at the bottom of your screens and as usual these expressed by guests are their own not those of the stiegler center or the university of chicago for more resources please check out the stickler center website as well as our publicationpromarket.org and our capitalism podcast the links to these platforms can be seen in the chat function at the bottom of your screen and now please allow me to very briefly introduce our keynote speakers you can find their full bios on our event page andre seifer is the john l loeb professor of economics at harvard university and joining him we have paolo sapienza the donald c clark hsbc chair in consumer finance and professor of finance at northwestern kellogg school of management and now paula let me turn it over to you thank you chris good morning everyone or good afternoon depending on where you are um so my role here is uh to moderate the discussion so let me just say a few words it's an honor to introduce andrei schleifer who is was also my phd advisor many years ago so this is a little special for me andrew is the john lloyd professor of economics at harvard has made many groundbreaking contributions in so many fields it would take hours for me to make justice of it so you know he has worked in political economy behavioral finance behavioral economics law and finance institution much more just for you to know andre is the single most cited economist in the entire world so uh no extra additional word um you know without further dues i'm gonna um uh pass the stage to andre he will make some remarks on george stigler contribution for about 20-25 minutes and in the meantime i will collect some questions from the audience that you can insert in the q a and at the end i will select some of them and turn it to andre again andre you want to go ahead um yes thanks thanks a lot paola and it's really a great honor and a great pleasure for me to participate in this session uh to talk a bit about george stickler's contribution one thing that is particularly nice for me is that this session kind of brings or together it is for me three people who have uh been extremely important for me um in my in my life in my career the first is uh of course um uh george stigler who's one of the greatest economists of the 20th century um whose paper we're talking about uh george was uh played a very large role in bringing me to the university of chicago in the 80s when i finished graduate school and he was [Music] an extraordinarily important mentor and an inspiration um in a lot of my work on political economy and last but not least it occurred to me as i was preparing a bit for this that george published this path breaking uh paper when he was 60 years old which of course poses both an inspiration and a challenge uh for those of us um who have gotten there uh the second person uh is of course paola who was uh so nice to introduce me paulus she says was a student of mine an amazing student at harvard uh some years ago and went on to a remarkable career as a scholar in both corporate finance and banking but also a pioneering scholar in cultural economics but also as a true leader of her school um and the business leader so that's really very special for me and of course last but not least there is luigi zingales who uh invited me uh uh to this event uh who is of course not just one of the most influential but uh uh also most exciting and colorful and uh uh charismatic um economists uh in the world i'll tell just one luigi story to start this off uh maybe 15 years ago maybe longer he and i had a conversation and it turned out that he actually attended my corporate finance lectures at harvard the first time i taught the class in the spring of 1991 and i asked luigi how were my lectures and he thought about this for a second and he said they were very very good except when you prepared uh so i decided to take a lead from luigi's advice and rather than have slides and other signs of preparation uh today i'm just going to make a few uh remarks in fact i would like to make three points which i think are somewhat more relevant to stigler's contribution the first point is that stigler's paper is of course understood by all of us as the fundamental probably single most important contribution to the economics of regulation because it changed the focus or changed the perspective and regulation from the idea that regulation is there to cure market failures and is uh pursued by a benevolent government to a perspective that in fact regulation is acquired by the industry to protect its market power and is uh far from benevolent in many many instances now that idea of course and i'm sure you will hear more about this in the discussion has been confirmed and illustrated and used very productively to analyze regulation in many many instances but i want to make the point that it is also not just the founding paper of economics of regulation but it is the founding paper of political economy before stigler the way in which economists thought about politics is in terms of voting and median voter theorem and ideas like that and what stigler's paper taught us is that in fact the right way the right way to think about economic policies not just in terms of the median voter and other voting ideas but rather in terms of exchange between politicians and firms or politicians and private sector actors and so what politicians provide on their side is policies that benefit particular constituencies whether it's firms or groups of voters and whether it's regulatory policy or protection or some other set of policies or direct financial benefits and what politicians get in return or in exchange is something from those they regulate now what is that something of course in some instances it's going to be votes uh from the uh favored entities but the idea is it's not just votes it's something much broader so for example campaign contributions or campaign cash thinking about that came out of stigler's work revolving doors whereby politicians come and take on jobs take up jobs at the firms they regulate but also in thinking about developing countries in particular not maybe not just developing countries alone the stigler perspective suggests that one way in which politicians get something in return for their policies is bribes and so much of the economics of corruption which has actually become quite a significant industry in research and economics with as you can imagine a great deal of empirical evidence uh is based very much on this stiglarian idea that of exchange between politicians and firms which is to save much of what some of what politicians get in return for favorable policies is uh is bribes and again there is no denial of the empirical significance of that idea i should take this even one step further which is in the original stiglarian conception kind of the leading parties in regulation are the firms that acquire protection or require support from politicians of course that's not always the case and you can flip the argument around which is a lot of what we see in the world in in the data is uh politicians uh introducing regulations introducing policies and then collecting favors of bribes of money in return for relief from regulation so for example i've done some work many years ago on the regulation of entry by small firms where it's very clear that one of the reasons for this regulation is precisely for politicians to be able to extract bribes uh in exchange for uh relief and so again some a productive line of work that led to many things including something called the doing business report very naturally followed from this very broad uh stiglerian idea of exchange or understanding the nature of the exchange between politicians and the entities they regulate and i give stiglit an enormous amount of credit for directing if you like political economy toward this goal the second point i want to make taking this in a slightly different direction is that although i think that sticklers is probably the single most important reason for poor economic policies or regulatory policies uh and so on uh there is another one which runs uh the close second um and is perhaps at least in my experience in my reading of the data is as important reason for bad regulation and i'm gonna make this kind of a big encompassing category of regulator ideology ignorance bad ideas narrow incentives whatever you want to call it which is that i think it's a mistake to think that all of bad regulatory or economic policies come from this exchange or from this capture which and that in fact it's very clear that to me at least that often it is the case that ideology uh or ignorant on narrow incentives play a big role um you know i'm going to illustrate this uh this is probably an appropriate time for this um with some ideas in in in the fight um against uh covet and i'm gonna make sure that um um i say some kind and generous things about everybody and not single out um any particular group or party now let's start with the president's president trump's uh covet denialism and essentially aggressive policies um against masks against testing um and so on which probably has cost uh the united states um a few hundred thousand lives and maybe millions of uh infections now you can make the argument that somehow trump was trying to uh exchange these ideas uh for votes but it seems to me that that's a bit of a stretched argument restrained argument in the sense that you could have perfectly imagined um a patriotic line of argument or appeal to voters that would in fact seek support for the eradication the rapid ending of the uh of covet uh yet none of that happened why did none of that happen well it seems to me that we can take the evidence at face value and suggest that the people around the president the president himself uh uh were ideologically uh motivated to deny the uh dangers of covet and uh wished to uh pursue policies that turned out to be pretty damaging so i think that that's an instance in which you can argue it both ways but probably ideology and ignorance played as much of a role as as any quote-unquote rational factors but just to give you a couple of examples to you know on the other side if you think about and this is again you know your the european union and the acquisitions acquisition of vaccines um again i don't have any insight and knowledge on this but it seems to be pretty obvious what has happened which is the task has been allocated to the procurement agencies within uh the european union who felt that their goal was uh to get the best price and uh so they did get very low prices um but also uh got some contracts um that had the best uh best efforts nature which basically meant that when there were higher offers from elsewhere there was no vaccine in the european union now again this is not exchange this is an insane policy that has cost the european union hundreds of billions of dollars in lost output uh probably thousands or tens of thousands of lives this is not a capture it's a pure incompetence but the source of that incompetence i think most likely is just narrow incentives of the bureaucracy to get the best price rather than to think about the broader picture so again insane regulatory policy extraordinarily damaging for no reason at all but again just to be fair if you think about the fda's um what is it slow down temporary and temporary uh stop on the use of the johnson and johnson vaccine after seven million doses seven episodes of blood clotting and i believe one death a policy that will surely cause tens of thousands of infections and maybe a few deaths maybe i don't know probably certainly more than one i mean what is driving this is it capture is it company is it the efforts by the competitors no it's not that it's rather that the fda has no consequences if thousands of people get infected and it has uh severe consequences if a couple people die and so you have tremendous distortions in regulatory policies resulting from bad incentives uh in the in the public sector rather than from capture uh per se um i can talk well let me briefly mention the 15 minimum wage um which is another moment of intended self-inflicted insanity um in the united states you know almost a third of the people in the make less than 15 an hour some of them work for firms that may be able to sustain the wage increases which are the stereotypes that are produced by the advocates of the policy probably half of these people half of the people make less than 15 dollars an hour work for extremely unproductive firms that are going to have to close and there is no way in which they're productive enough to pay those wages so strikes me as purely ideological set of ideas which are going to be extraordinarily detrimental and again i don't think that capture is the is the is the right theory i should say one last example of this is that often capture um interacts an interesting way with ideology so my favorite example and this is from a work of a phd student of mine between 1987 and uh today and 2017 so over a 30-year period the number of fighter fires in the united states has fallen by 43 percent and the number of firefighters has increased by 54 okay if you look at the uk the number of fires has fallen tremendously as well but so has the number of firefighters so in the united states we have this uh extraordinary phenomenon in which and it's not by the way because having more firefighters prevents fires it works uh firefighters don't prevent fires they uh um they extinguish them anyhow so what is happening uh well uh it's a combination of capture and stupidity the stupidity is that uh what the firefighters do in the united states today is they don't fight fire uh fires uh they chase ambulances and uh because uh there is this notion that somehow maybe a fire truck a la uh arrives to a 911 ambulance call a few seconds before the ambulance does um if you actually do the calculations the benefits of this um on lives saved um are negligible uh if any uh and the costs of this increase in the number of firefighters uh are enormous this is a cost of municipalities that could be saved spending the money on schools um and so forth a truly insane policy but of course and this is where stigler comes in that once the policy was put in place by people who didn't really understand uh the facts and the data uh they are now extremely strongly supported by firefighter unions and uh now are impossible to get rid of so it's the combination of uh bad ideas and capture that leads to um to bad policies the last point i'm going to make and i'm going to try to make it relatively quickly is uh is that you know there is another line of thought that stigler's work has started um and maybe that's not what stiglit intended which is to say that um you know both of the lines of thought that i've described have to do with bad regulation you know whether the regulators are captured or whether they're ignorant uh the the regulatory outcomes are bad but of course that's a bit too simple and probably wrong because even though we do see these distortions in regulatory policy it is also the case that in a civilized society we're used to many many regulations that we think are net are beneficial so we probably like to be flying on safe planes and we like to that the food is safe that we eat we like that the water that we drink and that we swim swim in is clean we like that the air that we breathe is less polluted we like the fact that the cars that we drive are safe now you can say that the market would have taken care of that those problems but it would be wrong to say that because we have just plentiful evidence from early 20th century us we have plentiful evidence even much later from air pollution and water pollution uh that markets do not take care of this problem you can say that the courts uh would have taken care of this problem and this is what people like to say but that also would be wrong because we know that in many situations uh courts fail to cure these problems either for ideological reasons but probably much more importantly empirically because uh in court contests in litigation uh in most instances not in all instances firms tend to be much more powerful much richer have better lawyers in the 19th century better ability to bribe in judges than the consumers or employees who have been affected by these uh by these policies and so in fact both historically and up to today regulation as often uh as not is actually an efficient response an efficient response to failures in in the marketplace but again you know this is in some sense an argument that takes you away from stigler but in another sense it is something that stigler and harold dempsets should get a tremendous amount of credit for because it is an argument that says that in order to think about economic policy we can't just focus on market failures we need to focus on alternative arrangements and alternative solutions uh to the problems of market failure and we actually need to focus on efficient solutions of solutions that survive the competition with others and so it seems to me that even that way of thinking which is uh pretty essential to many of the ideas in law and economics owes a lot uh to uh to george uh stigler so let me just sum up and finish uh sticklers is not just a great paper it's also a living paper it's a paper that even today 50 years out 50 years since its publication provides both intellectual inspiration and even when one disagrees with it avenues for going in other directions in new directions of exploring uh the world that we live in and for this we should all be extremely grateful and appreciative thank you very much thank you andre um we have a very little time for till the end of the session so i have a one maybe main question that uh connects uh a number of questions so if you putting together your first and last point uh the first being the enormous impact that george stigler had on political economy uh as a field um way beyond his initial uh uh germ of the you know the culture element and then the last point where you know yet regulation is an important task where do you see the economics as a field going because at some level we see a lot of political economy and not very much economics of regulation or not very many job market papers on the economics of regulation so is it because uh the field has been uh exhaustively uh studied or is it because uh um it's too uh specific what are the rules that we should come up in terms of thinking about optimal regulation metrics well i can give you my take on this which is not necessarily right which is that you know in the last 20 years uh political economy maybe 30 years has been one of the uh great tremendous success stories of economics both because it has introduced a range of new ideas but also because there is just an enormous amount of data and enormous amount of evidence that can be brought to bear on pretty important questions and so as a by-product of these explosions you can sort of see how several fields have been maybe folded is the wrong word but essentially folded into political economy so you know to my mind a lot of economic history has been uh folded into political economy maybe not all of it but a lot of it a lot of law and economics has been folded into political economy uh because uh the empirical questions are uh political economy questions and a lot of economics of regulation has been folded into political economy precisely because i mean and that's you know if you look at the conferences that's where a lot of papers of regulation are being presented precisely because um that is a large and extremely dynamic field that things if you like in very stiglerian firms terms about all these issues so i think in some sense it's a very healthy development although this is not to deny that there are many issues just as there are in history and in law and economics that are perhaps more specialized to the field so uh so we're almost out of time uh uh and so i i think in in a way what you are saying is that uh uh political political economy has been the natural place uh where to study uh regulation or and in some way this could be really singular legacy uh you know without thinking about what politician would do uh economics of regulation makes no sense and so in some way that's the right place to do that um i think when we are out of time uh and uh i'm going to pass this to chris back um i don't know chris uh um we're gonna have a post before the panel oh uh okay we still have uh five minutes i'm sorry i mis uh spoke uh i have one extra question andre um in terms of uh um uh that uh uh think about uh regulation and uh um uh innovation especially in uh um transition uh in a ca in econom in uh transition economies and to what extent these the the ethereal capture uh as more relevance in certain developing countries well i i guess i think this is a very very important question and it's um uh perhaps again part of the integration of regulatory economics into a political economy which is to say that you know these issues that stigler raised um are obviously incredibly important in the context of wealthy countries but they are much more raw i would say in the context of developing countries or transition economies uh or what have you in which there is less openness less transparency fewer countervailing powers if i could use the term of stigler's nemesis john kenneth galbraith uh the uh and so you see the phenomena that stigler has talked about in a much cruder if you like form so using you know it is really the case that in a developing country uh large firms by economic policy you know for money uh by protection by regulation um and so on it is really uh the case that um um in these countries there are really no mechanisms that um uh seth beltzmann and others have written about to mitigate um the effects of these anti-social policies and so if you want to study or understand policy making in in the developing world or in middle-income countries perhaps even more so than in the developing world then stiglerian considerations become come into focus become very very central uh thank you andrei uh at this point is 12 25 um i think chris is taking over or there is going to be a pose yes you're muted we'll pause briefly for a couple minutes uh thank you again andre and paula we'll pause briefly for a few minutes and begin our panel at 12 30 central time thank you so much thank you everyone for joining us we'll begin in just one minute good afternoon and welcome back if you are just joining us i am chris wheat director of the steegler center we will continue today's sessions on george secret's contribution and lasting impact in just a few minutes with a panel discussion for this session we are happy to host professors carrie colonisi sam peltzman and nancy rose for a panel discussion carried by randy grossner before we begin please remember we are on the record and we will post the video on our youtube channel later the views expressed by guests are their own not those of the spiegeler center or the university of chicago and please submit any questions for the speakers via the q a icon at the bottom of your screen and now allow me to very briefly introduce our speakers their full bios are available on our event page carrie kalanissi is the edward b shields professor of law and professor of political science at the university of pennsylvania kerry law school he is also the director of the penn program on regulation sam peltzman is the ralph and dorothy keller distinguished service professor of economics uh emeritus at chicago booth and director emeritus of the spiegeler center nancy rose is the charles p kindleberger professor of applied economics at mit and our chair today is randy krausner who is the deputy dean for executive programs and norman b bobbins professor of economics at chicago booth he is also a former director of the steelers center and now without further ado i turn it over to dean crossner thank you thank you very much chris and also thanks to uh andre and uh paula for uh for a great uh great thoughts on on the great man george george stigler um it's amazing that 50 years ago that he wrote this paper and exactly as i think andre had put it it's something that's alive it's something that is still uh being discussed it still animates the way we think about uh regulation that we where we think about political economy and um i had spent some time in in washington both uh working in the white house at the council of economic advisors and at the federal reserve chairing the supervision regulation committee and so i got to see how this hostage was being made and it is very much a combination of institutions uh interests and ideology that that come in so i could see um stigler's ideas in practice but also sort of the the broadening of the the ideas um into a sort of a broader marketplace uh i think in the way that andre had talked about it and what i'm going to do is is turn to uh to sam to start us off um he also has a very famous paper on towards a more general theory of uh of regulation where he sort of builds on not some of those ideas we're just talking about before and and puts them into a broader marketplace context and so sam why don't you start off well well thank you i'm going to have a powerpoint presentation so i hope this works how do i oh here we go okay uh okay what i'd like to do in this uh time that i have is i i want to address a couple of questions one is what did this paper say and the second is what is its lasting impact so uh uh i think that what the paper really says consists of uh four uh elements the first is a rejection of what harold dempsets used to call the nirvana fallacy i'll explain all of this later i just want to list them now he replaced nirvana with public choice reasoning uh and this leads him to an emphasis on a political competition of interests and finally of course why are we here the synthesis of all of this is his capture theory so let me begin with the first which is what i i'd like to call the rejection of of the of the nirvana fallacy uh the nirvana fallacy in this context is the view of uh uh the public interested regulator taming market failures that's not only that he should but that he does by enlarge this stigler rejects this because it's not economics and it's uh also at this point he's reacting to uh a burgeoning empirical literature with which this notion is inconsistent so uh what my appraisal of this uh this first aspect is a mixed i think that the public interest story has uh uh an enduring appeal uh it it it does go in cycles uh the the the world of the 1970s was a little bit more uh receptive i think to the rejection of nirvana than we perhaps have today we can discuss all of this at more detail later if you want but i i do think we're seeing a revival today of what stigler rejected the second element is that he replaced nirvana with public choice and what that leads to is political competition this is not original with stigler but he certainly forcefully uh uh brought it to the surface he's treating regular regulators as economic actors they're they're self-regarding subject to constraints and the constraints include things like rational ignorance and the cost of collective action and those of constraints affect a competition for the regulator's favor which uh which emphasizes the distributive aspects of uh regulation as much if not more than the efficiency aspects and this competition is going to generally favor the organized and the informed as opposed to the rationally ignorant and the unorganized in this context consumers will be losers and producers will be the winners well how was all of this fans i think here there's a more enduring effect but only up to a point all subsequent general theory modeling including uh mine and subsequent uh versions of the economic theory of regulation as an example there really is not no serious alternative to this public choice modeling of the regulatory process as a general model but what's happened is i think that interest in general models has faded uh that started somewhere that i think that that the interest in general models uh petered out sometime in the 1990s uh carey actually has a paper on this which uh uh will go into it much more detail than i i have the time for now but but this is true this is true not just in economics of regulation it's true in a lot of areas of economics there's much more specialization the field has devolved into case studies and there's also been this revival of nirvana how many textbooks that that an undergraduate might encounter uh or for that matter how many courses on the economics of regulation that a graduate student might encounter will devote much time to government failure compared to market failure so i think i think that the the uh the the looking for a general model of regulation has uh faded and the the point of the public choice modeling has also faded a little bit then finally we get the capture model which is why we're here the famous quote from stigler that regulation is acquired by the industry and designed and operated primarily for its benefit well that's the most memorable thing about the paper but is it true okay and i think here i think it's important to distinguish the origin story from the outcome story the acquired part from the designed and operated part uh who acquires regulation well sometimes it is the industry and his paper gives examples from occupational licensing and transportation but probably that is not mainly what is going on at least not in uh uh the context of the united states and other developed countries which uh which was the context in which he was writing the paper uh there's a whole host of for firs he was writing just as a whole uh wave of environmental and social regulation was beginning to bubble up most of that was opposed by the industry uh financial regulation it's either opposed by the industry or the industry is divided it's the banks and the insurance companies fighting with each other for supremacy and then we have deregulation which how do you figure that in if the industry captures and gets regulation why should there be deregulation for that matter we have a new phenomenon now which is uh uh the the regulator requiring the industry to think about wind farms and solar panels and all of that sort of those industries didn't exist without the regulation uh not certainly not in their their form so so uh uh it's a tough uh saying regulation is acquired by the industry is tough the main preference i think is for the status quo whatever it is uh because the industry has to make an investment to react to whatever the whatever the regulatory background is and they're lo if it's regulation they're both to have deregulation if it's non-regulation they would they could they would resist the regulation for the same reason when you when it gets to the design of the operation of regulation i think you you have a a more enduring truth once you have the regulation you have a political process and the public choice elements can't be avoided all of them the collective action the information they imply interest group competition the organized and informed group will always include the industry and i don't think there's been any serious challenge to that aspect of uh of the story uh uh uh there's another famous not less famous quote that i i i i'm showing you here which is his reaction to when the economists uh come back with nirvana they say isn't it terrible that we have pro-industry regulation and you can see the quote uh i have to the the anp was the biggest supermarket chain of that era you would most of you don't even know what it is uh it says something about the dynamics of the marketplace uh but uh it makes a telling point what do you expect what do you expect uh the industry is going to have uh uh uh uh uh this uh an outsized influence on the way regulations actually operates uh so i'll close here with uh with the implication and a possible uh uh warning for those who are tempted by uh nirvana it is if you want regulation things may get better but be aware that you also get substantial industry influence cannot be avoided it will favor incumbents against potential entrants who don't even know who they are you'll get the revolving door for information reasons for nothing else you'll get complicated rules rather than simple rules you'll get increased industry involvement and political campaigns and let's just end with with that if you want to discuss what else you'll get we can do it later on so uh i'm done here great thanks a lot sam you can finish um sharing your your screen oh you want me to take it off there perfect perfect that good now that was that that was excellent that's a really great way of saying i really like your your assessment in one of the times when i was in in washington uh the way someone put your um your last point is if you decide you think regulation is um that you want to propose a regulation would you still be in favor of it if the people who completely disagreed with you were the ones who do to enforce it and that really gets at that uh that issue and it really it it gives you pause when you're in washington if you think that do i really want to propose this regulation uh and and i think that's a really interesting way to nancy i want to turn to you because i know that this paper was extremely influential on you becoming an economist and so i actually like to hear a little bit about that as well as how that's sort of shaped your views on economics and regulation because you have also been in uh in government and so you've gotten to see the the sausage being made absolutely well i want to thank uh thank you randy and and everyone else for being uh for inviting me to speak to today's event um like andre i i owe enormous personal as well as professional debt to george and his work on regulatory economics um and i'll get to your uh to your specific question um in a slightly roundabout way which is to say uh i basically became an economist because i took a course on the economics of regulation that was taught by joe colt the spring of my junior year in college and that moved my career path from political science law and politics as a way to engage public policy to economics and an mit economics phd in a career in academia and i think it is incontrovertible that without the intellectual vibrancy that was injected into the study of regulation by george stigler on the positive theory side and also you know to a rough contemporary fred khan on the institutions and policy side that that course would not have existed and economics would likely have been my path uh not taken um so i think that this paper you know was incredibly important in a somewhat indirect way uh for creating the course and in a very direct way for sparking um my passion for a study of regulatory economics that's existed throughout my entire career um in academia um but george was also a personal influence for me when i finished my my mit phd dissertation on trucking deregulation i mailed chapters to leading economists to appraise them of my work and to elicit feedback you know this was in the days before ssrn before websites or even an nber program an industrial organization so if you wanted somebody to read a paper before it came out in the journal you mimeographed copies of it stuck it in an envelope with postage on it and sent it out um that sparked a treasured friendship and mentorship with george who not only took the time to open that bulky envelope and read the papers but then invited me to chicago to present my work at the famous applied economics workshop i'm not sure that's what it was called at the time but since that's also the pre-web days i couldn't nail down the the exact title um and that was one of the most exhilarating afternoons of my career um as the give and take with people like george with sam uh gary becker and others kind of probed what we could learn about regulation and labor rent sharing from the work that i had done so again just you know uh accelerating my interest and passion in this then a few months later george called me and said he'd like to nominate me for an olin faculty fellowship and he hoped if i won it as he expected i would i'd spend part of the year visiting the university of chicago so i thought you know that sounded fabulous i i wasn't quite sure why george expected i would win it but i then came to learn perhaps george had a little bit of inside um information inside track in that and so i i got the next year to spend a quarter at the university of chicago um which provided in-depth exposure to george's intellect his wit and his passion for discussing economics over any and all meals um so uh i just i can't i probably can't overstate the influence that he's had on me and on so many others i wanted to also key in with some of what we've heard about today on this um question about the current study of regulatory economics so i was really fortunate that mit embraced regulatory economics as a topic for graduate training in industrial organization when i was there in the early 1980s now that was at the height of the deregulation movement so perhaps it wasn't so surprising that a school would devote an entire you know half of the sequence the graduate sequence to regulation in antitrust but it's been especially gratifying for me that my colleagues and i have continued to recognize the importance of training scholars in this field in an unbroken thread i i just a couple weeks ago wrapped up my half course in our graduate economics io sequence which starts with stigler 1971 on the political economy of economic regulation so you know i totally embrace this view this is a not economic history this is a living paper and then i sprint through a rich literature on the positive and normative analyses of regulation talking about both government failure and market failure spanning markets from electric utilities to transportation financial services to pharmaceuticals digital platforms to environmental regulation um i'm hoping that the renewed interest we're seeing in discussions of regulation particularly of digital platforms and perhaps environmental regulation will lead us to reinstate such courses at other top schools because i think one of the reasons we don't have more work in this space is that students are not being trained in this field um but if i could just say a couple of words about you know what i think stickler 1971 has contributed to academia and policy building on the you know the great discussions that andre provided and that that sam has provided you know i think it was important not only for dynamiting the conventional thinking about regulation to kind of open up a whole new set of questions and approaches that if if regulatory policy was perhaps the outcome of competition among interest groups for the coercive power of the state um either to create or to protect economic grants then the work that economists had to do was vast right not only to describe the political economy or why regulation takes particular forms to build off of sam's comments about regulatory processes but also what are the actual impacts on prices on service on product quality on innovation how do firms respond strategically to those incentives how should systems be designed to minimize distortions you know going forward to the the really important work that uh jean-jacques lafont and jean-terrell have done on designing regulation in the face of asymmetric information um and then there's the policy part of it and and i wanted to randy build on your question so yes i spent um almost two and a half years in washington um serving in the department of justice and trust division um from 2014 to 2016. which was a phenomenal experience and i i want to you know um say that my my what i've now shifted from is the focus on regulation and regulated industries to thinking much harder and writing much more on antitrust policy and that's because i think that what has happened um and this built i think really um beautiful on the insights that andre schleifer described as you know what might not be captured but misguided ideology i think reflects what's going on in antitrust policy and that is that while many scholars and practitioners have proposed antitrust as an alternative to regulation and a preferred alternative in the words of um of your colleague colleagues dennis carlton and randy picker who describe antitrust as saying no very well while regulators have a hard time saying no and that the broad span of antitrust helps to prevent capture you know i think what has in fact happened is that we shouldn't be so naive to think that the forces stigler describes work just in a regulatory context but not in an anti-trust or law enforcement context andre hinted at this when he talked about um you know the forces that might influence uh judges and judicial outcomes um i i don't think that those fundamental forces for the um coercive power of the state stop at the door of the courthouse and i think what has happened over the last 40 years is that um a movement also anchored in chicago but becoming more perhaps out of the law school tradition began to push for loosening antitrust enforcement which maybe at the beginning was moving the pendulum sort of toward a more appropriate position um but i think that over the last 40 years what we've seen is it's become increasingly distorted uh to protect powerful corporate interests over competitive markets in this kind of combination of capture and ideology that corporate contributions fund judicial education programs in antitrust that promote theoretical possibilities as an empirical fact fail to reflect existing empirical evidence on anti-competitive behavior overstate the cost of false positives while understanding the cost cost of false negatives and and uh that combined with the susceptibility of litigation outcomes to tilt toward deep pocketed corporate interests and congressional starvation of enforcement agency budgets i think has led to under enforcement of what should be our greatest protection against market power and i think if we don't recognize that and move the anti-trust pendulum kind of back toward a more pro-enforcement stance um we face um you know perhaps uh substantial costs as interests that are uh populist movements that are that are frustrated um by the the tilt away from competitive markets you know reject the entire kind of economic foundation of that system so i think it's not just a living um paper and living a set of insights for regulatory policy but i think we ought to now be turning it toward anti-trust policy as well great that's really really very very very insightful and actually perfect setup for for carrie who is one of the world's experts on uh administrative law and um and thinking about regulation kerry has written a lot in this this area so i think a i'd love to get your views on the uh the influence of stigler's paper but also maybe pick up on some of the themes that nancy talked about about regulation antitrust and the um the legal process sure thank you randy and all the organizers uh for the invitation to be here today and uh you know it is the case as others have said that stigler's uh theory of economic regulation has been one of the most influential works in the political economy of regulation it's an article that's still worth talking about today 50 years later and i am happy to talk about what i think are some of the influences that it's had in the field of regulation and administrative law but but i have to start by saying something that maybe sounds a little bit heretical in the context of a commemoration uh event like we have today i think most readers reading the paper today might well be forgiven for thinking that the paper probably couldn't be published today and so i want to start with by just highlighting a few weaknesses of the paper but then go on to explain why nevertheless i think the paper has enjoyed so much impact uh impact in the world at large impact on regulatory scholarship impact that is i think truly uh deserved uh notwithstanding uh what i think are there probably five limitations or weaknesses of the paper and i'll just say these briefly i mean one it one the first weakness is it over claims uh you know so uh sam put up with a famous statement uh but left out actually three words at the beginning of of stigler's famous statement where he said as a rule uh regulation is acquired by industry and designed and operated primarily for its benefit so there are some statements in um this paper that are what we might think of today as being a little less than careful and i think uh certainly provoke um criticisms that that are leveled against uh stigler today even uh second uh weakness i think is some of the key concepts that he uses are are not very well specified in the in the paper at times he treats industry for example as if it's a monolith uh the industry in his famous statement and he treats the state and the regulator as a monolith uh he treats it business influence or writes of it sometimes as if it's binary your regulators are either subservient or they are not uh and i think there's some conflation or blurring or at least lack of clarity times between what sam called the origin story and the outcomes the impetus for legislation and the way regulation is made that that's a weakness a third limitation or weakness is it's not totally original uh there were political scientists in the 50s samuel huntington marver bernstein who were writing about business influence and capture of regulators a lot of the underlying theory that stigler applies uh actually you know owes to uh nancer olsen's work uh before him uh so that's uh i mean it's always true of course there's no new thing totally under the sun in scientists and economists and scholars build on the work of others but but that's just worth putting out there that this is not like the first time that people discovered that a business was having some influence on regulators a fourth limitation is with the empirical analysis which i think people looking at today would find uh you know far from compelling or rigorous uh two two case studies of state level regulation and trucking and occupational licensing uh very simple regressions uh even stigler acknowledged that the results were not very robust he presented what he called a modicum of evidence for his theory uh and a fifth limitation and i think this sam already also alluded to is that the theoretical claims that he was making seem to have been overtaken very soon after the article was published by events on the ground uh the death of economic regulation or the deregulation movement of the 70s and 80s and the birth of social regulation and consumer environmental regulation in the 1970s didn't seem to quite fit what he was getting at so five limitations or weaknesses but yet here we are talking about uh stigler's uh theory of economic regulation uh 50 years later despite these flaws or limitations it is an important and influential piece of scholarship it's worth our continued engagement with it five decades later and there's no denying it it's had an important impact on the economics on political science uh and on law uh in some sense i think we're all stiglerians uh today um when it comes to law uh you know legal scholarship and the decisions of judges have been highly influenced in the field of administrative law that body of law with rules that govern uh government agencies by concerns about regulatory capture interestingly uh the word capture is not ever included uh or used by stigler in uh his theory of economic regulation but but nevertheless um that emphasis and concern about regulatory capture just really took off in the years following 1971 and you know as a just a simple exercise to identify the influence stigler and this article in fact has had on legal thinking i ran a search of citations uh for his article and compared them with citations to four earlier major works that articulated a capture theory samuel huntington's work marver bernstein's work uh historian gabriel kolkel's work and uh ted lowey's work as well and stickler's paper was actually has been cited three times as many as all four of those other works combined it has affected how judges think about standing doctrine and the access to courts uh a standing revolution it sometimes said occurred in the 1970s owing to a concern about the courts being just too much affected by business groups and there was an expansion to allow environmental groups and public so-called public interest groups to come in to play uh doctrines about judicial review and the scrutiny of regulations transparency no accident the government and sunshine act was uh enacted in 1976 uh in this period of time of concern about uh regulatory capture uh so what might what might explain uh the appeal and the influence of stigler's work notwithstanding its flaws i i think i would probably say there's about four maybe four plausible explanations uh and i just want to highlight those because i think they they reflect some of the virtues and and the value of the of the work today i mean the first i think the first reason for its influence is it tells a dramatic story i mean the drama comes from turning what most people at the time accepted as the hero into the villain uh the public interest theory the nirvana theory held that regulation was there to promote public welfare it was the savior in the face of market failure and yet stigler then comes along and reveals wait a minute the reality can be quite the opposite what looked to be public interested is actually uh advancing private interests it's a bit like the murder mystery where the really nice guy turns out to be the murderer or if any of you have uh small children uh you probably have watched the movie frozen at least once and uh it's a bit like prince hans uh who first seems to fall in love with anna but in fact is only manipulating her uh to try to scheme and take over the kingdom that's dramatic and that's part of i think what is so appealing about stigler and so important though too and that leads to i think a second explanation for its influence i think it's more than just a compelling drama it's actually capturing an important part of the reality of the regulatory process business interests simply do have a lot of influence and the public interest theory uh that held sway at the time stigler was writing was indeed too uh pollyannish or naive and yes and businesses don't always win uh there are counter examples to business dominance that deregulation and environmental regulation can but there's also no denying uh the the power of industry too i mean the 1970s did see a lot of environmental legislation passed by congress but how much has been passed since it's been almost 20 years now since the united nations has really recognized climate change as a serious problem we still don't have federal legislation and the in the kind of environmental regulation that epa has adopted under climate change has been relatively limited and and litigated uh too so i think stigler's concerns about business influence still ring true today i mean occupational licensing is another example that is still uh talked about today and uh you know political scientists uh all the way from ee shot snyder in the in the middle of last century to uh paul pearson and jacob hacker today i think are reminding us of the the power and influence of of of business in uh the policy process um a third i think reason is i don't i don't think some of the criticisms and limitations against stigler sometimes are based more on a caricature than a real close reading of uh the article you know stigler did write some passages that one can pick out and uh and criticize as overclaiming or maybe seeming too simplistic but if you read the paper carefully and study it which i think is worth doing he recognized that industry was far from monolithic he recognized that not every regulation was there to advance industry last i think the fourth reason why this has had such an impact and and uh and influence on both uh scholarship and and uh on policy thinking um is it emerged at a time when i think academics and society more generally was just receptive to this idea we you know we have to think back in 1964 trust in the federal government had was at its all-time high 77 percent of the public when surveyed said they had high levels of trust in the federal government but vietnam happened the civil rights movement happened watergate happened and by 1974 uh that level of trust was was cut more than in half uh down to 36 or so so uh we have had this this paper coming along historically at a time of considerable uh skepticism about government uh lack and with removal of faith in government and this was happening on the left and the right the left saw the government is in the pocket of corporations the right solid government is interfering with positive market forces and quite frankly uh this is still true to this day we have uh on the regulatory review which is a publication we put out at the penn program on regulation a special series on capture that we ran about five years ago and it has uh an essay by senator elizabeth warren and uh an essay by senator mike lee both of them decrying uh regulatory capture uh so in the end i think you know i think we are here to uh celebrate a a an influential and important work for bringing to light a key underlying mechanism for much of regulatory policy uh that is self-interest and uh for pointing to the need for a better way of and a more careful way of thinking about institutions and their uh design and how that can affect the the shape of policy by affecting the interests of those who are involved in making it it's not just a paper that is a theory of economic regulation but it is really the foundation for an economic theory of regulation foreshadowing and providing a grounding for a lot of rational choice work on on regulation and on regulatory procedure and i think one thing that the scholarship on administrative law has shown over the years is that procedures too as much as they may help counteract or maybe useful in uh trying to address regulatory capture they too those procedures can be manipulated and and influenced for uh political gain as well uh you know i i think you know ultimately the the aim the the normative aim of of regulation is to uh you know make the world a better place and i think uh stigler actually helps us on that path he separates out the positive from the normative and it forces us to recognize that yes there can be market failures but there can also be government failures and then he says we should go and try to study empirically and understand the world how it does operate because i think in the end uh that's the only way we can work harder and do better to make the world more like what it should be great that's really interesting i think it gets at some important points um that also that nancy and sam had had raised and thinking about what is the the best instrument and how do different groups use different different instruments because the um the institutions themselves can either make it easier for people to organize or less easy for people to organize or for different groups may be able to to use different institutions in different ways and so it's something it's it's much more general than just it's a given that you get capture in this particular way it really makes you think about the the design and implementation as being very important for who's going to end up end up having influence i'm glad you mentioned gabriel coco because that's actually how i got in into all this uh before i got to the college i had actually read gabriel koko's uh work on railroads and regulation because the icc uh the uh the was really one of the first um interstate uh uh regulatory bodies that came in in the u.s and it very much was something that really strikes me as i remember even though i read that more than 40 years ago was that the the lawyers for the industry group actually were doing some of the drafting of the legislation and so that was sort of a clear example of that obviously not all cases are like that one other thing i want to note is that something that's sort of ironic given what we've been talking about on sort of capture and uh regulated industries and also getting back to what nancy was was talking about about the educational role that sometimes can be used by by industry groups george's paper was published in the bell journal of economics and the build journal was um people may not remember this because there was a telephone monopoly in in the us and there was a lab the bell labs that um the monopoly generated a lot of profit and so they did a variety of um supported a variety of things including supporting a journal on um on microeconomics and regulation and so it's it's it's sort of interesting and ironic that uh that george's paper was uh was published uh published in there um we're starting to get some questions in which is really great and um and so please continue to put more in uh the one uh from stephen skilvis actually really nicely touches on some of the things that you were talking about carrie as well as some things you were talking about uh about sam um i think that um so let me read um or sort of paraphrase it um how should we be thinking about these these processes and uh especially when there are multiple actors and multiple entrance interests so should regulatory design focus on a process where the influences of competing interests are balanced given that some of these interests are highly concentrated and others are diffuse so really thinking about the design as an important part of affecting the the outcome i know sam do you want to uh because you would you had touched on this i'm thinking about the distinction between the origin and outcomes do you want to chime in and then maybe nancy and kerry can come in samuel mute okay uh you can overstate i think the the degree to which uh the design of the regulation is going to affect uh uh the outcome i mean it's all very general and of course in principle i can agree with it but uh you cannot i think overstate that whatever the design is the the the the public choice elements at play will surface so i can't think of any design which is going to make uh uh a public utility commission not worry about the the the utility that it's regulating and the employees were organized i can't i can't imagine how design uh uh affects that i will say this the one of the one of the uh one of the the things that stigler left out that kerry alluded to was uh stick the stigler view uh is not heavy on design it's been called a black box theory where the state the legislator the regulators are all kind of lumped in to one and it took it took a a lot of uh uh unwind uh unpacking of that black box uh uh later on i think the unfortunate thing from a theoretical perspective is that that again that that worrying about these broad general problems kind of has receded into the background and were more into the world nancy described which is okay what are the facts about the particular case uh and i think that's a little bit uh that's a little bit unfortunate because it's clear that the political background matters the the the the uh uh the the power structure from that goes from uh uh the the political marketplace through the legislator legislature through the establishment of regulation through the procedures that the regulator regulator will follow those are all important uh uh for just a couple of historical facts there has never been a wave of regulatory growth without a democratic congress clearly it's not just some undifferentiated state with some undifferentiated legislature that's producing uh the regulation it happens in certain environments and not in other environments we didn't have enough time to go into this but there's a whole subsequent literature on how these forces get filtered through in particular the american legislature the guys like ken shepsley and barry weingast worried about these kind of problems and made some very important contributions uh so i you know i can i can i can agree with the question uh but uh uh i i i also don't want you to lose sight of the fact that whatever the mechanism there's going to be a political public choice element that you can't escape nancy did you want to um touching this uh design question it's gonna let carrie because i think this is his this is his uh you know main uh area of expertise although i'd be happy to to kick in if if he doesn't i'm sure he will cover it more than i would but i might say different things than you would too though but feel free to uh yeah come after me i'll be i'll be somewhat brief too so we can get some more questions in i mean to some extent the the the question asking about balancing and designing a a process that can sort of channel interests and and and and and make sure that they balance each other out is a a very old idea going back to the founding of the united states it was madison who said that you know really the dangers in a democracy is the power of factions right and you need to design some structures so that ambition can counteract ambition uh so there's something i think certainly to the questioners uh in intuition here and it is reflected in what we saw developing in the 1970s when we uh not only new legislation that was uh enacted to protect consumers and environmental interests but we also saw at the same time and jack walker the late jack walker political scientist showed this i think most clearly we had after this legislation was passed up really just a flourishing of new interest groups forming in washington and so we now have something that quite frankly you know wasn't really too predictable either from old spencer olsen's work or or or i suppose george stigler's work too the the the institutionalization of an environmental lobby in washington dc to somewhat counteract now i don't think anybody would would you know ever say that there are equal footing in terms of the resources and the capabilities but they do have a degree of balancing and we see structures of procedures that have allowed them to participate that have given them greater uh awareness and transparency that about what government is doing so that they can be activated they have had you know expansive standing uh in court and now of course these things have been contested too and i think the same uh politicization if you will that may not have been nancy's word but of the judiciary is certainly at work in rethinking and we have seen conservative justices wanting to rein in the ability for say environmental interests to get access to courts and a restriction of standing doctrine for that reason so yes balancing i think is uh is a long-standing notion i agree also though with sam that it doesn't like erase the fundamentals that people will be acting in their self-interest but nevertheless uh it is uh i think a structural response that we have seen and i think we've seen again uh george's work being highly influential in the movement toward creating those those institutional designs maybe the one thing i might add that's sort of taking us in a slightly different direction but but um given how well salmon and carrie covered that is um to go back to something um uh that uh i remember his carrier sam said does the medicare i think the does the deregulation movement in the 70s kind of falsify stickler's theory and and i think that's super interesting part probably because that's you know when i came of age as an economist was in the middle of that um uh and spent time in in washington as the um trucking deregulation was kind of moving through the the system in halts and fits you know i think i think it doesn't and i think part partly why is because you know that movement um took place um although it although it does complexify maybe the theory so first that deregulation movement took place when we had had a massive shift in the costs and incidents of economic regulation in industries that were probably you know fundamentally structurally competitive so kind of classic stigler capture legislative capture industries like trucking and airlines industries where the energy crisis had substantially increased the cost of inefficiencies that the regulatory system created in both trucking with empty back halls and circumstance routes and in airlines with very low load factors so very high costs um per per travel passenger mile um and so you know i think the theory does suggest and and maybe there is this status quo bias as well but it does suggest that there are these massive disruptions that kind of change winners and losers and how they perceive things we might expect a change in the regime um i think the other interesting thing about so to take for example either to take both airlines and trucking you know is the role of this kind of ideology and ideological entrepreneur with ted kennedy playing that role in congress with respect and you know stephen breyer having a role in advising him with respect to to airlines and then trucking um and then fred khan who somehow we got into the cab as the chair i think that's what's super interesting to contrast the u.s and the uk where the uk has these expert regulators drawn safe from academics not from industry the us tends to have political regulators drawn from say congressional staff or or industry um but where fred khan came in with a clear vision of you know what the cost of airline regulation were and he tweaked the rules he could tweak in a way that i think basically took a few of the airlines that had been massively opposed to airline deregulation and convince them gee if i've got to live with this guy i'd rather be deregulated and so again altered that kind of constellation of interest and forces anyway my my you know a little a little bit of complexity to what stigler has in this paper but i think it's i don't think george would have disagreed with any of this right i think you're right carrie he was he was viewing this as a very stylized model i think what is so compelling about this is it gets us all talking about it and i think um at least i i certainly don't think this is a tension with with deregulation and like the work that i had done on um on deregulation of banking in the 1970s 1980s really it was it was an interesting competition approach and there were some shocks that came in that that affected the relative costs and benefits to the different groups of the regulation something is what might seem so odd now is like the development of the 800 number so that um you didn't have to bank locally you could bank anywhere and it didn't cost you a fortune because you had because the bell telephone monopolies was very expensive to call long distance but with the invention of the 800 number then you could bank with anyone anywhere and so it dramatically changed that technological innovation dramatically changed the uh and disintermediation of banking right because of the the binding regulation q ceilings on interest rates that led huge outflows of deposits to money market mutual led to the creation of money market mutual funds and huge outflows and again kind of change how the entrenched interests see their future yeah so i think it's it it's very what i think is interesting it gets you thinking about exactly these issues because it is about interest groups and interest group competition but things can can change and exactly as you had said nancy if you have a very clever person in at the you know as the regulator they can they can think about the endogenicity and they can think about um by changing some of the regulations or making some some changes perhaps changing the the balance you know whether it's divide and conquer or whether it's it's getting people to organize more easily i think it's also very interesting and actually i'd like to ask the panel about technology today and do you how do you think that is changing at this competition among interest groups because nancy you had had mentioned uh obviously thinking about digital platforms so there's there's issues around that and antitrust it's also related to one of the questions that came in about natural monopoly and uh public kind of public utility type type regulation um is that an alternative of either having government ownership or having a public utility uh regulation for this this area in in digital in some of these digital platforms but also more broadly how is digital changing the information flows uh the potential for providing either good information or not so good information um how do you think that is changing this this com uh this sort of marketplace and then if you have something specific on the digital platforms themselves and then nancy when did you start yeah so great set of questions i'm not sure i've gone through i've got answers to them all i will say i think um you know i i think probably the the um the potential for for good is less than we might hope uh in terms of you know freeing up information flows but as you kind of already hinted at framing up that question randy i think the potential for misinformation flows is just as large and again if you have interests that benefit from misdirection or misinformation if they benefit a lot um you know we should expect to see that out there i think um you know to take this to home to where we all live in academia one of the things that worries me a lot and this kind of that i had thought about the bell journal um uh the stickler paper being in the bell journal and had decided maybe that wasn't on my my top list of things i wanted to say but uh you know that was an interesting you could think of that as you know the the google equivalent is you know we're going to sponsor a journal it it was the premier field journal in industrial organization for decades um i'm not saying it's not now but i'm just bell's not hasn't been involved in it for a long time um uh and it it did publish papers you know it had an independent editorial board but certainly some of the work that was coming out of bell labs and published in the bell journal was work that was favorable to the interests of att uh you know today the analog of that is um you know there's a lot of academic work that is being funded by i won't say sponsored but funded or supported by by digital platform companies with often with not great transparency um uh you know and and i don't just mean you know the the googles and and um and amazons and facebooks of the world you know qualcomm to take a company that's not a platform company but it's a tech company you know has had decades a very successful penetration of its line uh it's its interest push into academic publications that don't get any recognition of being supported or funded by qualcomm and often are are really trash in terms of the academic quality i'll just put it out there um uh and yet those papers then get picked up and cited because they're quote peer-reviewed um so i i think i think in academics we've got an academic economist we've got a lot of room to sort of clean our own house and figure out how we avoid becoming um complicit in kind of interest group politics to to change regulatory outcomes so it doesn't answer your question i'll see if carrie or sam i've got answers to your digital platform regulation question but but something that's been on my mind more and more lately i can offer two thoughts one one thought about um about sort of the substance of regulating these digital platform companies uh that i think is um an important point that stigler leads us to think about even though i don't think he directly really acknowledged it and that is that sometimes regulation might well be to the advantage of incumbent firms but nevertheless also to the advantage of the overall public and uh you know if the facebooks and googles and amazons and apples of the of today could figure out a way to really make some meaningful progress on let's say the problem of misinformation but if it were costly it could both uh inhibit innovation in that area be to the you know in that sense advantage of these incumbent digital platforms but it also might really solve an important social problem and then the question is just really whether you know the welfare gains from the um the regulation that that solving the um the misinformation problem it is you know sufficiently outweighing the costs of whatever drag on innovation there might be and you know that's an open empirical question but at least it suggests that you you don't neces it's not an either or sometimes regulation can help private firms but also help uh the broader public too so that's one point about the substance over the second point and i think this goes to part of your question about how these platforms are affecting regulation overall uh i think the rise of social media is really transforming the kind of the the political environment within which a lot of regulators are operating and i'm seeing this in particular at the state level uh a lot these days in areas of regulation that have for decades been really backroom kind of operations where uh you know the the regulators and the industry you know know each other they go fishing together whatever um you know and and you see this with oil and gas and other types of uh electricity regulators overall and that's how they operated for many years outside of the limelight without say the same kind of media attention or or even the kind of transparency rules that we can see at the federal level but uh now with social media and anybody with a blog and so forth we are seeing that and and they're telling me too like our world has really changed we've got to be much more careful today than we ever did before and i do think that that is a part of the political life today that there's greater visibility and greater dialogue discourse and and attention and cascading that can occur and regulators can be caught up in the middle of that uh in a way that they never never had before sam well you can count me as a skeptic about all of this uh i don't see anything in the rise of the digital platforms that is particularly novel or troubling i have not heard anybody articulate a state of the world that would be better if you had some regulatory greater regulatory oversight i think the degree of monopoly is vastly exaggerated i don't think there's a major anti-trust concern but i haven't heard anybody articulate what that concern really is in antitrust terms what what what is the what is the remedy that will that an anti-trust court can impose and how it will make the world better the one thing i am sure of is if you do if the current stamping toward regulating these platforms gains momentum then the competition will be less okay valuable valuable innovation will be stifled and the incumbents will have disproportionate influence over the process so what i'm sure of right now outweighs some fanciful uh problem that somebody could invent uh uh and uh again you know i i i think much of this is the nirvana fallacy uh revived oh there are these problems there are there are the problems i i can see uh carrie is annoying but i can see constitutional issues where the the censorship of these platforms if it's to curry regulatory favor seems to be constitutionally problematic so that there are problems but uh you have to take uh a a a wider view how is the world going to be better if you uh if you regulate given everything that we're here today to to worry about excellent i know this question would get some different answers and get some so i am i do not think that we should minimize the the problem of designing any type of regulatory solution um i i am particularly nervous tell me what the problem is okay so so tim i think there is i think there is a problem with under deterrence of anti-competitive exclusionary behavior in these sectors and i think that that has led to um substantial barriers to entry even above what the underlying technology would give us so i think you know i think the platform sectors have just naturally high barriers to entry or or um or tendencies toward consolidation where competition for the market is much more important than competition in the market but i think because of decades honestly decades of under enforcement of monopolization antitrust law we don't deter anti-competitive behavior we have not i think that's what some of these lawsuits we've already seen filed in this space are reflecting and i i think if we want i mean this is what i was trying to say if we want to avoid a kind of populist rush to um to policies that are not going to necessarily improve economic outcomes we should be incredibly um uh committed to enforcing competitive markets um uh however we can and i'd like to see i don't think antitrust is going to solve many of the problems that those who are upset with the current platform sectors are are flagging i don't think personally i'm not sure i don't see how a divestiture or disintegration of these um uh companies um works um for the particular problems that we're talking about with with some few examples a few exceptions perhaps but i think more effective deterrence of exclusionary behavior is absolutely essential and i think that starts with better funding for the enforcement agencies so they actually have the time and resources and staff to be able to bring challenges i think it it requires courts to um to reject um kind of simplistic views that say you know markets are are always tending toward competition if they're monopoly rents somebody will come in and compete them away we just don't see that um particularly where we don't protect against exclusionary behavior um so i i think we need to do something more in the anti-trust enforcement space and then i think we may need some kind of light touch regulation so you know something like and i don't know how this works i don't i'm not saying i've got the answers but something like when we wanted to get more competition in the telecom space we had number portability um we had we had already interoperability in the telecom space right that allows a new firm to come in and begin to compete so maybe we need to to think about kind of these light touch regulations that are not draconian price and entry and scope of business regulations that are are dangerous in terms of innovation in fast-moving markets um but you know how how can we begin to level the playing field you know i i would just add you know nancy's laid out very well the argument for there being a problem a market failure from the standpoint of of of the concentration of market power that's a classic market failure there's others that people raise here i mean information asymmetries people are participating on these platforms but they really don't know what's happening with their data with their privacy that is a regulatory problem uh there are externalities to you know you can think about the spread and diffusion of falsehoods and conspiracy theories as a form of if of pollute idea pollution perhaps i'm not saying that these are problems that uh you know regulation can solve or that that they justify government intervention of any sort but their problems i think that are associated and i think we'd be diluting ourselves and saying that the digital platforms are problem free did you want just a a quick uh final word on this because i have one question that i want to conclude within different uh different area you talk sam did you want to no no no no no no go go ahead okay okay good i think it's it's this is an extraordinarily interesting uh area and uh and so uh and obviously stigler center does uh does an annual conference on this so i think that's a very interesting thing to to go down but but gary gary it's it's interesting because you've talked about both the positives and the negatives because you said now with the these platforms and these um and blogs and such there's much more transparency now at the state level much more um uh much more monitoring but also you've talked about the potential for misinformation that's coming out i think that's it's very interesting because both possibilities are there and thinking about you know the difficulty of making sure that you if you try to uh reduce the problem side that you don't harm the the positive side i think is that's a really really challenging thing uh challenging going forward but the final question comes from uh jake jarrus which i think is an excellent one to conclude with advice for phd students interested in the economic theory of regulation so what's at the cutting edge what are the areas that you think new research should be should be focusing on and what are the subfields where we're making the some of the most most progress um as uh he mentions here that andre had mentioned the non-capture aspects of political economy regulation regulatory incentives com competence ideology um and so just maybe just a quick because we're almost at time just if you have a quick thought or two for giving advice to the researchers going forward let me start i'm a journal editor so i face the oldest journal editor in the history of economics journals i think but i face i face this every day and uh my advice to somebody at the phd level is it's very unfortunate but uh you do what it takes to get out and it is not going to be i i dislike say it's not going to be asking the kind of questions we've been dealing with today why do we have regulation what is what can you expect in general from the operation of regulatory agencies it's very likely to be a much more specialized look at particular kinds of regulations you're gonna get you're gonna you're getting it now uh you're getting a tremendous opportunity now in uh financial services ten years after the dodd-frank act you can begin to you can begin to ask what's been the effect of it i have my own views but i'd like to see a a a a a a detailed well-identified blah blah blah kind of study of the effect of some aspect of that regulatory change on some aspect of the financial services industry so that's the way you're going to go and i do not uh it is not my advice to somebody at the phd level to take on the questions that that i think need to still need the general theory kind of in interest and that petered out in the 1990s it's not because the problems were solved it's because the profession just moved in a different direction not just in regulation and political economy but it uh just moved in a in a different uh different mode so young man or woman whoever asked the question don't fight it don't fight the establishment carry and then look at the last word nancy there's i think no shortage of need for uh x post retrospective empirical evaluation of regulation we've got a lot more theory and analysis that goes on before regulations are put in place then we have a body of research of what's happening after the fact so that's one thing uh you know another another opportunity it seems to me we've got an emergence of behavioral economics and and the use and study of behavioral economics as a strategy for shaping behavior in the world i think there's still uh very little about how about the behavioral economics of regulating and regulatory uh behavior and the third area i think and it's probably the one in some ways that's closest to what stigler was pointing to and what political scientists have uh for many years uh focused on it you know it's whereas politics as being about who wins who loses we have a paucity of knowledge about how regulation uh affects inequality and what the the incidence of uh the benefits and costs of regulation are and i think if uh phd students or other younger scholars or can can add to that uh question uh i think that would be important great nancy yeah so i i would just echo i'm carrie's last point i think that's absolutely true there you know there used to be a little bit of work on incidents of regulation particularly say across different customer groups or whatnot but there's been relatively little of it recently i think the behavioral angle is also quite interesting both in terms of regulatory design um and in terms of regulatory behavior right so so josco 74 is a paper that i tell every single phd student i talk to they need to read it's a super super important paper it's you know one of the earliest um embodiments of behavioral economics in regulation the study regulation and i o in general um and i but there's been like almost nothing that's kind of come since then that's that's built up on that um i think in general there's a lot of interesting work that's being done on regulatory design and a bit on regulatory impact you know i we saw a few job market papers this year that looked at that certainly um you know mit has got um a a history of students that have come out um not a lot but but students are coming out that are looking at the impact of regulation and i think especially in environmental and energy economics there is a lot of this work that's being done that's kind of an applied regulation field um where it's it's got enough scholars working in it that that some of the more methodological pressures of io are a little less important and so you can ask maybe slightly bigger questions like the one sam wants you to ask um then you can if you're just writing a straight um o uh dissertation so i did great really helpful um i like to make a plug for um the fda and the area that sam has certainly worked in with a pandemic this is there's a lot of interesting innovation that has gone on there and looking at that also like operation warp speed and then the different approaches that different countries have taken to vaccine um acquisition i think that's and and rollouts you've got this great set of ex variations across countries and so i think there's there's a lot potentially to do to do there and i think it's super important work because we really need people to understand what worked and what didn't work and why did we get the different outcomes in the different different countries uh because it makes a big difference to lives and livelihoods and if you wanted to build on that i will say the the ftc has announced that it is engaged in the international cooperative um reassessment of antitrust in the pharmaceutical space and that if you're an early grad student you know seeing where that goes and seeing if there are some shocks that come out policy shocks that come out of that and how it how it influences you know everything from merger activity to to outcomes in pharma could also be interesting yeah i think this is a an area where from a public policy point of view would be extraordinarily valuable to have more insights into this and i think for any graduate student there's a natural interest in these topics right now and this is not going away over the next few years there's going to be a lot of interest in this and there's just been so much change that just seems like uh there there would be a lot of opportunities a lot of opportunities there so thanks to to sam to nancy decary for a really really uh lively and interesting discussion thanks to members of the audience for sending in the questions i couldn't get to all of them but i i tried to get uh get a few of them uh get a few of them in and thanks to the stigler center for uh honoring uh george at his uh at the 50th of this uh of this paper and my guess is we'll be talking about this for another 50 years thank you very much and uh oh and this is of course just the first day of the uh uh of the panel of the uh of the conference please join the stigler center again tomorrow for a uh very interesting keynote uh i think it's by cass sunstein and then a panel that follow after that thank you bye-bye

Channel: Stigler Center

Views: 1,029

Rating: 4.826087 out of 5

Keywords: george stigler, stigler center, u of c, university of chicago, chicago booth, economics, politics, capitalism, antitrust, political economy, coporations, monopolies, Andrei Shleifer, harvard, Paola Sapienza, northwestern kellogg, Randall Kroszner, Cary Coglianese, university of pennsylvania, Sam Peltzman, nancy rose, MIT

Id: tOXlVtpvgvE

Length: 124min 58sec (7498 seconds)

Published: Tue Apr 20 2021