Regulatory Capture and the Dynamics of Interventionism:The Case of Power Utilities in Quebec and Ontario to 1944

I have a new working paper available on SSRN. This time its with my putative father Germain Belzile (HEC Montreal) and my eternal partner in crime Rosolino Candela (George Mason University). In the paper, we argue that the nationalization of electrical utilities in Quebec in the 1940s was an outcome of nationalization and consumption subsidization of electricity in Ontario in the 1900s and 1910s. To do so, we connect George Stigler’s theory of economic regulation to Ludwig von Mises’ theory of the dynamics of interventionism. The paper is somewhat of a myth-buster for Quebec/Canadian economic history as it builds on earlier work of Germain and I arguing that the industry in Quebec was very innovative, charged very low rates in North American perspective and was quite competitive on many margins. We point out that, however, nationalization in Ontario caused demand to be met by Quebec’s private firms which caused prices in Quebec to increase. This fueled pro-nationalization movements in the province. The link is above and the abstract is below:

To what extent are the outcomes of economic regulation intended and desired by its proponents?  To address this question, we combine Stigler’s theory of regulatory capture with the Austrian theory of the dynamics of interventionism.  We reframe Stigler’s theory of regulatory capture as an analytical starting point for a dynamic theory of interventionism, one which accounts for the unintended consequences that emerge from regulation, even if the origins of such regulation were designed to benefit a particular industry or special interest group. Therefore, we argue that regulatory capture is not necessarily inconsistent with a dynamic theory of intervention. We illustrate this theoretical point by applying it to an econometric case study of electric utility regulation and its nationalization in both Ontario and Quebec in the early 20th century, resulting in unintended and undesirable consequences that deviated from the interests of the regulation’s intended beneficiaries.

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