Regulatory capture: A rational action in business

This paper studies three simple models of regulatory capture under three different economic conditions. In the traditional capture theories, efficient firms prefer capturing government and pretending to be inefficient to get subsidies or pay less tax so that the social welfare could be reduced. In most Chinese researchers´ opinions, firms who capture governments to go into the markets have inefficient cost. However, the analytical results based on three models suggest that capturing government is a rational action of firms who have efficient cost; furthermore, these firms can also improve social welfare.