The capture theory of regulation, popularized in an article by Nobel laureate George Stigler, concludes that regulatory agencies become “captured” by the firms they regulate. Regulatory agencies act in the best interest of the firms they regulate rather than serving the general public interest.
Regulatory capture partly occurs because regulated firms have a concentrated interest in regulatory outcomes. In contrast, the general public has a diluted interest. Regulated firms have a large incentive to influence regulatory agencies. Members of the general public have almost no incentive to do so.
Assume, for example, that a regulatory protection for a firm would cost each of one
