Rent-Seeking Across Party Lines

In high school, I worked at a garage door company that is the dominant firm in the Rhode Island market, which also has a few smaller competitors that service mostly smaller jobs. For the purposes of this blog post I'll call it ABC Garage Doors. ABC regularly makes political contributions, mainly to gubernatorial races in the hope for benefits like favorable labor rules, lower taxes, and increased access to government contracts. These favorable benefits can be thought of as the transfer of wealth Peltzman describes and the money spent doing so as rent-seeking.

Interestingly, ABC often contributes to both Republicans and Democrats, often within the same race. In Peltzman's model, K is defined as any spending by beneficiaries "in campaign funds, lobbying, and so on" to win support and reduce opposition. Giving to both candidates seems less about spending money to reduce opposition and more about purchasing political access regardless of who wins.

RI regulations prohibit corporations from donating so ABC's owner donates himself. Although it is required for campaigns to publicly report any donations exceeding $200, there is likely less negative press on ABC than larger corporations (which often fund through PACs), so the owner supports both candidates publicly and attends both parties' campaign events.

From ABC's perspective, this strategy is rational because it reduces the risk of backing the losing candidate and preserves relationships with whoever holds office. However, resources spent rent seeking could otherwise be used productively. Contributing to candidates with diametrically opposed positions also raises questions about whether these donations reflect genuine political preferences or primarily an attempt to secure favorable treatment.

How Large AI Companies are Protecting Their Own Profit

A recent Reuters article, highlights an interesting contradiction within the artificial intelligence (AI) industry. OpenAI President Greg Brockman donated $25 million to a political group "Leading the Future" who spends millions of dollars to support congressional candidates who oppose regulations that “unduly constrain or delay AI development” in the US. This is particularly interesting because Brockman has also publicly supported AI safety measures and government oversight. Meanwhile, Leading the Future supports establishing a national regulatory framework that would prevent individual states from implementing their own AI restrictions. This situation poses an important question: are large AI companies such as OpenAI genuinely interested in responsible regulation, or are they more interested in ensuring that regulation works in their favor?

This is closely connected to George Stigler's theory of economic regulation, which argues that industries use government regulation to advance their own economic interests rather than the public interest. In this case, large AI companies have an incentive to influence the regulatory environment in ways that protect their existing market positions and limit competition. For example, companies like OpenAI have the financial and political resources to navigate complex federal regulations, while smaller AI startups would struggle to compete if compliance become too expensive. At the same time, established companies may oppose regulations that restrict their own operations or slow their ability to bring products to market, especially with many of them wanting to go public in the near future. By influencing which regulations are implemented, and at what level of government, these companies can potentially create barriers to entry, reduce competition, and preserve their market share.

To add, In Tullock's terms, this is classic rent-seeking: using financial and political resources that could have been used somewhere else to secure advantageous regulation rather than competing solely through innovation and better products.

Can Antitrust Be Captured? Stigler's Theory and the Sherman Antitrust Act

Stigler 71 tells us that regulation exists because firms want it to. Firms can use regulation to maximize profits, so they bid on regulation and draft it alongside lawmakers in an attempt to do so. For more typical forms of regulation like the Telecommunications Act of 1996, it's easy to pick out the benefits for firms. Most often, regulation allows them a legal outlet to restrict entry and monopolize a market, meaning they can produce where MR=MC. This is where the firm produces in their dream, ideal world. But how, then, do we reconcile the Sherman Antitrust Act of 1890, which seems antithetical to firms' efforts to produce where MR=MC, with the theory of regulatory capture? Stigler would likely argue that it can be reconciled through its enforcement.

According to Stigler's framework, it's not just in drafting and passing new laws that regulation can be captured--so, too, can it be captured through enforcement. In the context of the Sherman Antitrust Act, the enforcement of antitrust law can be influenced by the very businesses it seeks to regulate. This may occur in several different ways. For one, businesses could influence the industries or companies which receive the most legal scrutiny. Second, it may come through regulatory exceptions and favorable interpretations of the law. Lastly, it could also come through businesses using antitrust law as a strategic weapon to disadvantage their competitors. Stigler would say that this doesn't necessarily make the act ineffective; rather, he would challenge whether the act automatically advances public interest.

Is Big Pharma On Your Side?

In my internship last summer, I worked for a pharmaceutical company’s lobbying team that gave money to both Democrat and Republican Members of Congress. The company signed these checks with the hope that members would vote in their interest. While I, of course, believe that the company I work for acts in the public’s best interest, critics of pharmaceutical companies generally view their lobbying unfavorably. However, Congressmen of both parties met with our team over the summer, which Peltzman would assume was an attempt to maximize the votes they will eventually receive. In these meetings, I observed my team educating and convincing members that certain policies (like the Clear Labels Act) would not only harm company profits by raising production costs, but also harm consumers. In this way, the company tried to align members' incentives with our own profit-maximizing incentives. We argued that a vote-maximizing politician should side with our interests because the bill would harm consumers.

In Peltzman’s model, f is the probability that a beneficiary of a policy supports the politician. Our lobbying meetings were intended to persuade legislators that voting in our favor would increase the likelihood that their constituents would support them electorally. I argue that this case was not necessarily a case of capture by special interests or rent-seeking, since the intended outcome had positive social value. Instead, some lobbying efforts can be seen as instances of experts educating politicians on issues that affect their constituents in ways they may not realize. Assuming this information is accurate and unbiased (likely somewhat unrealistic to assume), the resources devoted to the cause are not wasteful. While our company is clearly motivated by profits, our interests are compatible with the interests of consumers (at least in this case). My experience demonstrates how, in the Peltzman model, politicians balance competing interests, but do not always have to make trade-offs between business and consumer interests.