George J. Stigler’s theory of economic regulation, bootleggers, baptists and the rebirth of the public interest imperative

Abstract

George Stigler’s pathbreaking 1971 article set forth a clear and testable economic theory of regulation and fundamentally changed how economists and others organized their thoughts about government regulation. Until Stigler’s work appeared, the public interest theory, the notion that elected officials and bureaucrats sought first to respond to the broad public desire for government services, dominated the literature. Stigler changed that and in doing so pushed the public interest theory aside. But there was something lacking in Stigler’s regulation theory that suggests there is still a strong role to be played by the public interest theory. While Stigler argued that politicians respond primarily to private interest demand for their services, it is still the case that politicians must explain their actions to the broad public and must work to make certain that the private interest regulatory benefits they produce are actually delivered. Justification and assurance of delivery are functions that are served in the Bootlegger/Baptist theory of regulation. Because the Bootlegger/Baptist theory combines the demand of two interest groups for the same regulatory service, the result will be more regulation. And the fact that both Bootleggers and Baptists will assist in seeing that regulation benefits are delivered, their activity reduces the cost encountered by politicians when seeking to serve the two groups. Again, more regulation will result.