Regulatory Capture

In April 2010, the Deepwater Horizon drilling platform exploded, killing eleven workers and releasing nearly five million barrels of oil into the Gulf of Mexico over the following months. A federal investigation found that the Minerals Management Service (the US agency responsible for overseeing offshore drilling) had accepted meals, gifts, and in some cases illegal payments from the companies it regulated. Safety records had been falsified and inspection reports had been rubber-stamped. The Obama administration responded by abolishing the agency and dividing its responsibilities between three new ones. The Minerals Management Service was a textbook example of what the economist George Stigler described in 1971 as regulatory capture: the process by which a regulatory agency comes to serve the interests of the industry it regulates rather than the public it was created to protect. Stigler’s argument was not that regulators were necessarily corrupt. It was that the incentive structures…