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The Deregulatory Snowball: Explaining Deregulation in the Financial Industry

Thomas H. Hammond and Jack H. Knott
The Journal of Politics
Vol. 50, No. 1 (Feb., 1988), pp. 3-30
Stable URL: http://www.jstor.org/stable/2131038
Page Count: 28
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The Deregulatory Snowball: Explaining Deregulation in the Financial Industry
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Abstract

Most theories of regulatory politics have a common implication: once regulations are in place, they are exceedingly difficult to remove. At best, a particular regulatory regime will remain stable for a long period of time; at worst, regulation will beget even more regulation. Given these theories the deregulation that has occurred in the American economy in the past decade is almost inexplicable. Several reasons have been suggested for this deregulation. In this paper we present an explanation which, while not incompatible with these previous accounts, suggests a somewhat different perspective on deregulation. Our explanation stresses the inherent instability of regulatory regimes. We illustrate our argument through reference to the deregulation of the financial industry. We demonstrate that several changes in the economics and technology of the financial industry started a "snowball" of deregulation which gradually picked up momentum as it rolled downhill, ultimately sweeping away many of the regulations in its path.

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