Dusting Off an Old Problem

October 24, 2011
by Jennifer Nash, Mossavar-Rahmani Center for Business and Government

David Moss, John G. McLean Professor of Business Administration, Harvard Business School, was motivated to edit a book on regulatory capture in 2009 as he and colleagues were advising federal lawmakers about how to respond to the financial crisis. Lawmakers wanted to know how to prevent the new consumer protection agency they were creating from being unduly influenced by the industries they sought to control. In a seminar organized by the Regulatory Policy Program on Oct. 20, Moss explained that he was struck by the lack of empirical evidence about how to prevent regulatory capture.

Much of the seminar focused on Moss’s study of the Federal Radio Commission’s 1927 decision not to expand the band of radio frequencies used for radio broadcasting. Because the FRC’s decision was beneficial to the broadcasting industry, it is frequently referenced as a textbook example of regulatory capture. Reviewing the transcript from the relevant public hearings, Moss found that every major interest group, not just broadcasters, opposed expanding the band, so the FRC’s decision was consistent with the industry’s as well as the public’s interest.

To fill that gap, Moss and Daniel Carpenter, Freed Professor of Government, Arts and Sciences at Harvard University, co-edited the forthcoming book, Preventing Capture: Special Interest Influence in Regulation, and How to Limit It. “Understanding how regulatory capture works in practice is the first step to mitigating it,” said Moss.

“Just because a regulatory agency’s decision supports a special interest’s position, we shouldn’t necessarily assume that special interest has captured the agency,” noted Moss. “The book takes a hard look at how undue influence occurs. It includes examples of when industries have captured regulators, and when they have not, and the many forms that influence can take.”

According to Moss, examples of strong capture, when special interest influence is so powerful that it renders the regulatory agency’s decisions harmful to the public interest, are relatively rare. Weak capture, in which special interest influence undercuts but does not completely subvert regulators’ efforts to advance the public interest, is more commonplace.

“An example of strong capture would be regulators writing rules that create significant barriers to new firms entering an industry,” explained Moss. “Much more common is what [contributing author] James Kwak calls cultural capture, in which the regulators adopt the worldview of the firms they are supposed to control, sometimes without even realizing it.”

Moss offered ideas for limiting regulatory capture based on the examples documented in the book. A diversity of opinion within regulatory agencies can be helpful, he said, as well as input from a diverse set of external interests. Judicial review of agencies’ decisions can also mitigate the influence of special interests.

The seminar was part of a series offered by the Regulatory Policy Program (RPP) at the Mossavar-Rahmani Center for Business and Government. RPP serves as a catalyst and clearinghouse for the study of regulation across Harvard University. The program's objectives are to cross-pollinate research, spark new lines of inquiry, and increase the connection between theory and practice.


Other articles you might find interesting:

How the U.S. Tax System is Being Used to Help Develop Affordable Housing

Madrick's "Age of Greed" Says Wall St. In League With Washington

New Paper Examines How Government Regimes Impact Economic Growth

Richard Zeckhauser and David Moss.

Richard Zeckhauser, Frank Plumpton Ramsey Professor of Political Economy, Harvard Kennedy School(L); and David Moss, John G. McLean Professor of Business Administration, Harvard Business School (R).

“Just because a regulatory agency’s decision supports a special interest’s position, we shouldn’t necessarily assume that special interest has captured the agency,” said Moss.


John F. Kennedy School of Government 79 John F. Kennedy Street
Cambridge, MA 02138
617-495-1100 Get Directions Visit Contact Page