THE EFFICIENCY GAINS FROM DEREGULATION

We analyze the efficiency gains from deregulating monopolies using an equilibrium rent seeking model. McCormick, Shughart and Tollison (1984 ) argue that the initial effort to establish regulation dissipates the monopoly profit, limiting the gain from deregulation to the efficienc y cost of monopoly. We establish conditions under which this propositi on holds; in particular, the initial rent seekers must fail to anticip ate the possibility of deregulation. Additionally, through application of the standard rent seeking model, we establish that the potential w elfare gains exceed the cost of achieving deregulation. Our results pr ovide support for policies aimed at eliminating monopoly and other typ es of economic distortion.