Regulatory Capture and the Dynamics of Interventionism: The Case of Power Utilities in Quebec and Ontario to 1944

Abstract

To what extent are the outcomes of economic regulation intended and desired by its proponents? To address this question, we combine Stigler’s theory of regulatory capture with the Austrian theory of the dynamics of interventionism. We reframe Stigler’s theory of regulatory capture as an analytical starting point for a dynamic theory of interventionism, one which accounts for the unintended consequences that emerge from regulation, even if the origins of such regulation were designed to benefit a particular industry or special interest group. Therefore, we argue that regulatory capture is not necessarily inconsistent with a dynamic theory of intervention. We illustrate this theoretical point by applying it to an econometric case study of electric utility regulation and its nationalization in both Ontario and Quebec in the early 20th century, resulting in unintended and undesirable consequences that deviated from the interests of the regulation’s intended beneficiaries.