A Graphical Exposition of the Economic Theory of Regulation

This article provides a novel graphical exposition of the economic theory of regulation. In particular, we show—within a single graphical construct—a number of features that emerge from the theory. Through a variety of applications we are able to provide an improved understanding of many questions that have vexed economists, including the markets likely to be chosen for regulation, the propensity of regulatory benefits to be spread across interest groups, the symbiotic nature of regulation and cross‐subsidization, and the economics of deregulation. We also are able to depict graphically the relationship between the economic theory of regulation and the traditional normative model of regulation, which assumes that regulators maximize social welfare. (JEL D72 , L51 )