Mois : février 2017

Theories of economic regulation with regard to broadcasting policies

Albeit designed with economic science in mind, I find theories of regulation (Keyes, 1960; Posner, 1974; Stigler, 1971) worth analyzing in the light of my research interest for broadcasting policies. They can prove enlightening when trying to « seize » the CRTC’s attitude towards private media corporations.

The literature on the matter typically distinguishes two types of regulation theories: the public interest theories and the private interest theories.

The former group of theories posits that “regulation is imposed by government to correct market failures in order to benefit consumers and to enhance social welfare”. (Priest, 1993, p. 298) Further, it contends that regulation is instrumental in allocating “scarce resources” in the best way possible for the greater good of society. (den Hertog, 2010, p. 1) Within this theoretical tradition, thus, the regulator is assumed to act out of benevolence with the aim of serving the public interest. (den Hertog, 2010; Posner, 1974)

The second group of theories is much more cynical as to the capacity of regulators to achieve public good. It asserts that policymakers are highly permeable to external pressures from all economic agents. As such, regulation does not pursue the public interest in priority, but the interest of various private players. (den Horteg, 2010) Among the authors who worked on this postulate, Stigler (1971) is probably the one whose contribution has proved the most influential in this area. His theory of economic regulation propounds the idea that “regulation is acquired by the industry and is designed and operated primarily for its benefit”. (Stigler, 1971, p. 3) This theoretical framework, more specifically, contends that groups that are willing to provide political parties with what they need (ex: “votes”, financial “campaign contributions”, etc.) are eventually returned the favor through regulatory changes that suit their interests. (Stigler, 1971) Therefore, “regulation is not directed at the correction of market failures, but at effecting wealth transfers in favor of the industries in exchange for political support”. (Den Hertog, 2010, p. 4)

Somewhere in between the public and private interest theories of regulation is the “capture theory”. It posits that regulatory agencies start operating with the intention of serving the public interest, but that they “come to be dominated by the industries regulated [the private interests of groups]” over time. (Posner, 1974, p. 12)

All these theories have been criticized for their lack of empirical evidence, their incapacity to “predi[ct] the existence and patterns of regulation in a given industry” (Keeler,1984, p. 104), and their numerous limitations (ex: failure to explain how sometimes the interests of consumers overshadow those of industries) (Posner, 1974; den Hertog, 2010). Nonetheless, Priest (1993) argues that they still highly influence the reflection in the domain. Indeed, the literature about the topic is permeated by the following question: “Can the existence and operation of regulatory commissions best be explained by some public interest theory or by some theory relating to the pursuit of private interests, typically at public expense? (p. 293)

Undeniably, parallels can be drawn between these theories of regulation and the history of broadcasting regulation in Canada. Broadcasting regulation, in effect, has gone from being clearly guided by public interest from being increasingly influenced by private interests. And this trend has only been intensified in the digital age, judging by the decisions taken by the CRTC in the wake of the « Let’s Talk TV » (2013-2015) consultation. The reduction of quotas for Canadian-produced TV shows aired on Canadian channels and the abolition of the « genre protection » are examples of measures that primarly benefit the Canadian broadcasting distribution undertakings (BDUs). Once again, the private players’ interests seem to have prevailed over culturally related concerns (i.e. the preoccupation of ensuring Canadian content made by Canadians on Canadian TV screens).

Bibliography

den Horteg, J. (2010). Review of economic theories of regulation. Tjalling C. Koopmans Research Institute Discussion Paper Series 10-18. http://www.uu.nl/organisatie/utrecht-university-school-of-economics-use/onderzoek/onderzoeksresultaten/discussion-papers

Keeler, T.E. (1984). Theories of regulation and the deregulation movement. Public choice, 44 (1), 103-145. http://www.jstor.org/stable/30023939?seq=1#page_scan_tab_contents

Keyes, L.S. (1960). Welfare economics and the theory of regulation. Land economics, 36 (4), 349-361. http://www.jstor.org/stable/3144429?seq=1#page_scan_tab_contents

Posner, R.A. (1974). Theories of economic regulation. The Bell Journal of Economics and Management Science, 5 (2), 335-358. http://www.thecre.com/oira/wp-content/uploads/2016/03/Posner.pdf

Priest, G.L. (1993). The origins of utility regulation and the ‘theories of regulation’ debate. The Journal of Law and Economics, 36 (1), 289-323. http://www.jstor.org/stable/725477?seq=1#page_scan_tab_contents

Stigler, G. (1971). The theory of economic regulation. The Bell Journal of Economics and Management Science, 2 (1), 3-21. http://www.jstor.org/stable/3003160?seq=1#page_scan_tab_contents