Abstract:

Is the cure of regulation always superior to the disease of market failure? This paper shows, in the context of a structural voting model, that voter-determined prices can lead to lower aggregate welfare than unregulated monopoly. Extending the voting model to incorporate lobbying, I examine the Becker (1983) hypothesis that lobbying can improve the efficiency of political outcomes by giving voice to economic interests under-represented in the political process. However, lobbying is costly (the Posner (1975) costly-rent-seeking hypothesis); the model suggests that competitive lobbying costs more than offset the increase in efficiency.

JEL Classification Codes: D72, L51
Keywords: Regulation, Political Economy, Median Voter, Lobbying, Telecommunications, Pricing.