Former JLF intern Travis Fisher (now working as an economist for the Federal Energy Regulatory Commission (FERC)) has a great article on the website of the United States Association of Energy Economics, where he argues that the coalition of political interests behind the new utility MACT rules are an example of what is known in public choice economics as “the baptists and bootleggers” theory of regulation. The name comes from the coalition of interests that, in days gone by, would support alcohol prohibition regulations. It was first promulgated by Clemson economist Bruce Yandle and has since become a staple in the arsenal of what is called public choice economics, or the economic analysis of political processes. Quoting Yandle, Fisher notes that “the theory ‘draws on colorful tales of states’ efforts to regulate alcoholic beverages by banning Sunday sales at legal outlets. Baptists fervently endorsed such actions on moral grounds. Bootleggers tolerated the actions gleefully because their effect was to limit competition.'”
Applying the theory to an issue that he, as an economist for FERC, has become quite familiar with, Fisher states that:
One such “unholy alliance” has emerged between environmentalists and some utilities in the context of the Environmental Protection Agency’s recent Utility MACT rule, which places a new federal regulatory burden on coal- and oil-fired electric generators. Among the proponents of Utility MACT are the health and environmental groups one might expect: the Sierra Club, the Natural Resources Defense Council, the American the Clean Skies Foundation, the American Lung Association. But several large electric utilities and natural gas producers support Utlility MACT right alongside environmentalists.
He explains how, in this more current story, the environmentalists are taking the role of the baptists while the utility companies that also support the rule are the bootleggers. There is not much need to show that the enviros are, at least in their own eyes, on the side of the angels. To demonstrate the utility and gas companies’ bootlegger role Fisher shows how those companies’ that support the bill will benefit from the fact that regulations will impose higher costs on their competitors than on themselves, and will therefore stifle their competition.
This article is a worthwhile read not only for its public choice analysis and for understanding the dynamics of the regulatory process but also for understanding what these new regulations actually do.
