Regulatory Reform, Capture, and the Regulatory Burden

This paper provides a critique of broad aggregate proposals to reduce the regulatory burden. It argues that the public debate about regulatory reform and red tape is loose and general, with little regard for the complex ways in which regulation imposes costs and benefits on the economy. Although there are theoretical reasons to expect regulation to be in excess supply, there is little empirical analysis to link aggregate regulation with productivity and economic growth. Regulation is itself a public good, and many aspects of economic efficiency require regulation to address market failures. The main efficiency issues are better addressed through a disaggregated approach, focusing on when, where, and how to regulate, rather than on crude aggregate estimates of the total burden. The design of regulation needs to take account of regulatory capture, and it is argued that market-based instruments and independent regulatory bodies tend to reduce the scope for capture. The incentives and employment rules governing regulatory institutions are also discussed. In ignoring these disaggregated regulatory design problems, crude aggregate targets for the reduction of regulation, and rules such as ‘one in, one out’ may be counter-productive.