Bootleggers & Baptists. Bruce Yandle

the public interest is confused by the fact that many lobbyists will claim to be serving the public interest, even though disagreement exists as to which nitrogen oxide standard is most desirable and how best to achieve it. But time is precious, and the politician has to make a decision. Persuaded by some of the lobbyists’ arguments, the legislator takes a position that turns out to be advantageous to certain Bootleggers.

      Suppose the politician opts to place the burden of reducing emissions on fuel manufacturers. Perhaps without realizing it, the politician has been captured by the engine manufacturers, one of several competing Bootleggers, while still believing that he or she is serving the public interest. In specific instances, the belief may even be accurate! The point is that whichever choice the politician makes, he or she will necessarily rely on information and analysis provided by parties with powerful vested interests in the outcome.

       Stigler’s Special Interest Groups

      So how does one predict which Bootlegger group will prevail in regulatory struggles? Our third theory was developed by Nobel laureate George Stigler and is called the special interest theory of regulation. Stigler suggests that if we wish to predict which of several parties will prevail in a valuable political struggle, we should imagine that the specific content of proposed legislation is simply auctioned off to the highest bidder.

      By focusing on which parties have the most to lose (or gain) in the struggle, we can begin to understand outcomes. Of course, this is just a first step in the process. To participate in the auction, the agents doing the bidding must know the consensus position of the group they represent. Organizing an interest group is costly, and the more numerous and diverse the players, the greater the cost. Once organized, the group must reach consensus on a preferred policy outcome, which may itself be costly, requiring research, analysis, and internal deliberation.

      With Stigler in mind, let’s reexamine the Clean Air Act scrubber case. Suppose the case had simply involved pitting western against eastern coal producers. The eastern producers were located in relatively populous states, had been organized and working the halls of Congress for decades, and had more members of Congress to confront and more support from other interest groups who wanted to keep local economies humming. The producers were not strictly homogeneous. Some produced metallurgical-grade coal, and some were diversified across industries, but a small number of large producers dominated the industry. When speaking to politicians, the voice of the United Mine Workers came through loud and clear.

      Now consider the western producers. They were comparatively younger firms with nonunionized workers and were located in remote corners of less populous states. They operated in towns that had yet to flourish, so these towns had not yet given rise to the school districts, Main Street merchants, and others who might later have lobbied for western coal. Although the bulk of the market for western coal was in the east, most consumers and voters were rationally ignorant about where their coal came from. Pushed to pick which region mattered most, concentrated eastern interests with a lot to lose outweighed scattered western interests that had yet to enjoy the fruits of an expanded market for their coal. Using this scorecard, a prediction that eastern interests would carry the day should have been easy to make.

      What about the conflict between truckers and rail interests, which led to the truckers being brought into the regulatory web? First, far fewer railroad companies existed than trucking firms at the time. The large rail companies had been organized and politically active for decades. Furthermore, railroad companies owned vast amounts of land in many states. These fixed assets meant railroad companies were all but certain to be around a long time, were in a position to extend significant favors, and had a long-term interest in political decisions affecting the value of their land spread over many states. By contrast, thousands of small, local trucking firms had few employees in the average firm. The truckers, being new to the game, faced high upfront organizing costs. They lacked both deep roots in important political territories and experience in working Washington. The transaction costs of organizing and securing beneficial regulation were lower for railroads than for trucking interests. Unsurprisingly, the railroads won the day.