Learning from the Past: Insights for the Regulation of Economic Activity
Chapter in NBER book Economic Regulation and Its Reform: What Have We Learned? (2014), Nancy L. Rose, editor (p. 1 - 23)
The legacy of regulatory reform and privatization has come under increasing attack in the post-2008 financial crisis world. This volume analyzes the history of regulation and its reform across a diverse set of industries, with the goal of extracting important lessons for the design and execution of government policy going forward. Several broad themes emerge from the chapters in this volume. First, even modest differences in market and regulatory institutions can yield substantial differences in outcomes; there is unlikely to be a "one size fits all" regulatory prescription. Second, incentives embedded in regulatory structures drive firm behavior, and, if not well-understood and well-designed, may yield quite unintended consequences. Third, innovations can change not only market opportunities, but also the regulatory game. Static regulation that does not keep pace with a dynamic industry may become increasingly irrelevant; successful oversight is associated with informed and nimble regulators. Finally, while we have learned much over the past decades about the design and execution of more effective and efficient regulation, regulatory instruments remain inherently imperfect, and policymakers confront a tradeoff between imperfect markets and imperfect regulation. Regulatory and policy responses subsequent to the 2008 financial crisis suggest that many of these insights have yet to be fully recognized and embraced. This may reflect in significant part the political economy of regulation. But if it arises in part from unfamiliarity with the lessons of past regulation, this work is intended to help fill the gap.
This paper was revised on February 4, 2016
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