Production Costs and Deregulation

The lack of deregulatory activity in the United States traditionally has been explained by either the relative stability of the net political support in favor of regulation or else the increased costs of producing the regulated good due to rent seeking. The first approach (Stigler, 1971; Peltzman, 1976; and Jarrell, 1984) assumes a symmetry exists between regulation and deregulation: politicians deregulate when the marginal opposition to redistribution is greater than the marginal political support and regulate when the reverse is true. The second approach emphasizes that a sort of ratchet effect occurs from regulation: