A note on the disinterest in deregulation

✍ Scribed by Roger Frantz; Michael Naughton

• Book ID: 104638367
• Publisher: Springer US
• Year: 1989
• Tongue: English
• Weight: 447 KB
• Volume: 1
• Category: Article
• ISSN: 0922-680X
• DOI: 10.1007/bf00140025

✦ Synopsis

In recent papers on deregulation, McCormick, Shugart and Tollison (1984, 1988; hereafter MST) argue that there are few, if any, gains to be had from deregulation, and that this explains the relative disinterest in deregulation. Their position seems to be based on two assertions. First, that the social costs of regulation are, "for the most part," the rent-seeking expenditures which created the regulation in the first place. Second, that these rent-seeking expenditures, made before the monopoly is created, are equal to the present value of all future monopoly (regulated) profits. That is, the entire present value ofaU future profits is dissipated up front through rent-seeking activities; the expected profits of being a regulated monopolist are zero.

According to MST, the effect of rent-seeking expenditures is to shift permanently the marginal cost curve for the regulated good upward, creating a new equilibrium position characterized by a lower output and higher price. This creates permanent allocative