The theory of regulation : a review article

This paper examines the various theoretical issues in regulation with a view to enhancing understanding of the regulation arena. Special emphasis has been placed on the banking industry. The paper shows how regulation serves different purposes for different interest groups on different occasions. It further argues that because of the ever shifting concept of 'public good', shifting individual and group interest and, perhaps the entwinement of individual and public good, neither the capture theory or the public good theory has yet fully explained the rationale for regulation. A clear understanding of the theoretical issues involved in regulation is therefore important if the forces that drive regulation are to be appreciated fully.