Lobbying in Thin Political Markets
This chapter summarizes the implications of the various instances of capture in accounting rulemaking described earlier. It presents evidence on the costs of such capture to the nature of GAAP and thus the economy as a whole. It then considers various alternatives to the current regulatory framework in accounting, including radical deregulation and the option to ban all corporate lobbying. It concludes that these options are infeasible because accounting rules are a public good necessitating regulation and because designing effective accounting rules requires input from corporate managers (including, auditors and bankers). The chapter proposes that accounting rulemaking presents a special case of a unique kind of regulatory challenge in designing market institutions, the challenge of thin political markets. In thin political markets, corporate managers possess the technical expertise necessary for informed regulation, enjoy strong economic interests in the outcome, and face little resistance to their lobbying activities from the general public.
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