Regulatory capture in a resource boom

Timothy Fitzgerald

Public Choice, 2024, vol. 198, issue 1, No 6, 93-127

Abstract: Abstract States oversee most regulation of oil and gas extraction in the United States. When relying on regulation, state oil and gas agencies may be susceptible to capture by firms developing resources. This may be particularly problematic during booms of resource development when information asymmetries are largest and existing regulations risk becoming obsolete. If regulators are captured, they may take actions that serve concentrated private interests in preference to the public interests they are charged with upholding. I develop and test hypotheses that oil and gas regulators are captured. The primary empirical tests use data from state regulation in North Dakota to prevent resource waste by restricting natural gas flaring. The empirical results are consistent with the theory of regulatory capture, providing empirical evidence that captured regulators serve well-organized specific interests in preference to diffuse general interests. These results provide novel granular evidence of the mechanisms for regulatory capture by showing differences in regulatory responses across firms and locations. This detailed evidence has implications for the design of regulations and reliance on regulatory interventions to protect the public interest.

Keywords: Regulatory capture; Natural gas flaring; North Dakota; Regulation of unconventional oil and gas; Resource boom (search for similar items in EconPapers)
JEL-codes: K23 L71 Q33 Q48 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11127-023-01113-5

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