This paper develops an agency-theoretic approach to interest-group politics, focusing on the potential identification of a regulatory agency with the interests of a regulated firm and non-industry groups. The authors explore several key issues in the theory of regulation, including the determinants of interest group power, the effect of regulatory politics on the agency's incentive structure and discretion, and their impact on the regulated firm's incentives and rent. The paper also examines how these effects vary with the power of interest groups and the amount of resources appropriated to the agency. The authors find that interest group power is not determined by a supply-and-demand theory, where regulation is captured by the interest group with the highest willingness to pay. Instead, the regulatory inefficiencies associated with the pressures of multiple interest groups may compound rather than cancel. Additionally, the power of an interest group depends not only on its willingness to pay but also on the kind of influence it wants to exert. The group has more power when its interest lies in inefficient rather than efficient regulation, where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the external monitor (Congress). The paper provides a detailed analysis of these dynamics in various scenarios, including collusion-free regulation, producer protection, and the presence of multiple interest groups.This paper develops an agency-theoretic approach to interest-group politics, focusing on the potential identification of a regulatory agency with the interests of a regulated firm and non-industry groups. The authors explore several key issues in the theory of regulation, including the determinants of interest group power, the effect of regulatory politics on the agency's incentive structure and discretion, and their impact on the regulated firm's incentives and rent. The paper also examines how these effects vary with the power of interest groups and the amount of resources appropriated to the agency. The authors find that interest group power is not determined by a supply-and-demand theory, where regulation is captured by the interest group with the highest willingness to pay. Instead, the regulatory inefficiencies associated with the pressures of multiple interest groups may compound rather than cancel. Additionally, the power of an interest group depends not only on its willingness to pay but also on the kind of influence it wants to exert. The group has more power when its interest lies in inefficient rather than efficient regulation, where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the external monitor (Congress). The paper provides a detailed analysis of these dynamics in various scenarios, including collusion-free regulation, producer protection, and the presence of multiple interest groups.