After Dodd-Frank: Advocacy Groups and Pathways of Institutional Change in Financial Market Regulation

For several decades, the political science literature on regulation has been dominated by the view that regulatory agencies are susceptible to “capture” by the very industries they are supposed to regulate.  According to the capture concept – developed by George Stigler, Mancur Olson, and James Q. Wilson – concentrated industry groups were able to dominate the details of regulation by imposing costs on consumers and users.   The financial crisis of 2008 raised the politics of regulation to a new level of practical and scholarly concern.  A number of scholars started to question the capture concept as too simple (Carpenter/Moss) or entirely inaccurate (Trumbull) in illuminating the post-2008 politics of regulation.   Building upon these critiques, other scholars have emphasized the place of expert knowledge in financial regulation (Jung/Dobbin) and argued that smaller advocacy groups can under the right conditions successfully oppose incumbent industry groups (Ziegler/Woolley).

This paper extends the analysis of advocacy groups in the politics of finance.  It asks whether these groups can achieve more than incremental change in the rule-making process for financial markets.  Using the literature on institutional change, the paper examines the impediments and the potential for lasting transformation in the institutions for systemic regulation of financial markets.   Empirical material is drawn primarily from the United States, but with compative reference to European cases.

Selected References

Carpenter, Daniel, and David A. Moss, eds., Preventing Regulatory Capture: Special Interest Influence and How to Limit It (New York: Cambridge University Press, 2014).

Dobbin, Frank, and Jiwook Jung, “The Misapplication of Mr. Michael Jensen: How Agency Theory Brought Down the Economy and Why It Might Again,” in Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part B, Research in the Sociology of Organizations, 30B (2010): 29-64.

Trumbull, J. Gunnar, Strength in Numbers: The Political Power of Weak Interests (Cambridge: Harvard University Press, 2012).

Ziegler, J. Nicholas, and John T. Woolley, “After Dodd-Frank: Ideas asnd the Post-Enactment Politics of Financial Reform in the United States,” forthcoming, Politics and Society (2016).