Regulation, public interest, and private interest: an empirical investigation of firms in Japan

Abstract

By using empirical methodology, this paper investigates to what extent the public interest and the private interest theories, respectively, explain the actual regulatory process. Our estimation findings are as follows: First, on average (whole industry basis), the explanation power of the public interest theory is about 46– 78%, while that of the private interest theory is about 22–54%. Second, the explanatory power of the public interest theory is higher in non-public utility industries, while that of the private interest theory is higher in public utility industries. This suggests that regulations on non-public utility industry are constructed largely with social welfare in mind, as assumed in conventional neoclassical welfare economics, but that those in the public utility industry tend to be captured largely by private groups, as assumed in private interest theory.