Saturday, April 14, 2007

A Captured Board

There are a couple of theories on regulation. One is called capture theory. Under capture theory the regulatory body becomes "captured" by the industry and regulates the market so as to raise (or protect) suppliers' profits. This is usually done by limiting access to the industry through licensing. If someone starts providing a service that competes with the suppliers, then the regulatory body generally claims jurisdiction and tries to force them to quit.

This last happened here in Phoenix with the high school kid that started rat proofing homes in Arcadia and ran afoul of the exterminators. Given enough public outcry, the regulators backed off.

Now we've got the Arizona Board of Appraisal going after Zillow.com

An Arizona regulatory board has ordered Zillow.com to stop offering its online estimates of home values.

The Arizona Board of Appraisal has issued two cease-and-desist letters to the popular real estate Web site, claiming Zillow needs an appraiser license to offer its "zestimates" in Arizona.

"It is the board's feeling that (Zillow) is providing an appraisal," said Deborah Pearson, Board of Appraisal executive director.

This is exactly the regulatory behavior that capture theory would predict.

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