Tuesday, March 28, 2006

When Google Goes to Washington

Northwestern University law and economics scholar Fred McChesney wrote a book on how the government, through mere regulatory threats, can solicit rents from businesses back in 1997.

According to professor McChesney, that theory (called rent-extraction theory) explains why we observe less regulations than we would have expected because a credible threat of regulation would be enough to bring about rents without the regulatory threats being actually implemented.

In NYT today, there is a story about how Google has to follow the footpaths of other low-tech firms in building up a strong presence in K street. The story tells another tale of how rent-extraction works in practice. Read the whole thing here.

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