Regulatory Reform, Capture, and the Regulatory Burden

This paper provides a critique of broad aggregate proposalsto reduce the regulatory burden. It argues that the public debateabout regulatory reform and red tape is loose and general, withlittle regard for the complex ways in which regulation imposescosts and benefits on the economy. Although there are theoreticalreasons to expect regulation to be in excess supply, there islittle empirical analysis to link aggregate regulation withproductivity and economic growth. Regulation is itself a publicgood, and many aspects of economic efficiency require regulationto address market failures. The main efficiency issues are betteraddressed through a disaggregated approach, focusing on when,where, and how to regulate, rather than on crude aggregate estimatesof the total burden. The design of regulation needs to takeaccount of regulatory capture, and it is argued that market-basedinstruments and independent regulatory bodies tend to reducethe scope for capture. The incentives and employment rules governingregulatory institutions are also discussed. In ignoring thesedisaggregated regulatory design problems, crude aggregate targetsfor the reduction of regulation, and rules such as ‘onein, one out’ may be counter-productive. Footnotes ¹ E-mail address: dieter{at}dhelm.co.uk