Wednesday, December 8, 2010
Posted by D. Daniel Sokol
Diana Weinert Thomas, Utah State University - College of Business - Department of Economics and Peter T. Leeson, George Mason University - Department of Economics have an interesting new paper on The Brewer, the Baker, and the Monopoly Maker.
ABSTRACT: This paper examines how productive entrepreneurial activities, such as innovation, influence unproductive entrepreneurial activities, such as regulatory rent seeking. We argue that the former may increase the latter. Confronted with a situation in which innovation erodes their monopoly returns, legally protected producers and policymakers reregulate industry to recapture lost rents. Regulation policy under such reregulation tends to be more encompassing, and thus produces more unproductive entrepreneurial activity, than preinnovation regulation policy. This reflects the greater number or variety of producers that new regulation policy must encompass for reregulation to recreate rents. To investigate our argument we consider Bavaria’s brewing industry in the 14th through 16th centuries.