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Regulation refers to "controlling human or societal behaviour by rules or restrictions."

Regulation can take many forms:

  • Legal restrictions promulgated by a government authority
  • Self-regulation, social regulation (e.g. norms)
  • Co-regulation
  • Market regulation

One can consider regulation as actions of conduct imposing sanctions (such as a fine). This action of administrative law, or implementing regulatory law, may be contrasted with statutory or case law.

Regulation mandated by a state attempts to produce outcomes which might not otherwise occur, produce or prevent outcomes in different places to what might otherwise occur, or produce or prevent outcomes in different timescales than would otherwise occur.

Common examples of regulation include attempts to control market entries, prices, wages, pollution effects, employment for certain people in certain industries, standards of production for certain goods, the military forces and services.

The economics of imposing or removing regulations relating to markets is analysed in regulatory economics.


Types of regulation

Regulations, like any other form of coercive action, have costs for some and benefits for others. Efficient regulations may only be said to exist where the total benefits to some people exceed the total costs to others.

Regulations are justified using a variety of reasons and therefore can be classified in several broad categories:

  • Market failures - regulation due to inefficiency. Intervention due to a classical economics argument to market failure.
    • Risk of monopoly
    • Collective action, or public good
    • Inadequate information
    • Unseen externalizations
  • Collective desires - regulation about collective desires or considered judgements on the part of a significant segments of society
  • Diverse experiences - regulation with a view of eliminating or enhancing opportunities for the formation of diverse preferences and beliefs
  • Social subordination - regulation aimed to increase or reduce social subordination of various social groups
  • Endogenous preferences - regulation's purpose is to affect the development of certain preferences on an aggregate level
  • Irreversibility - regulation that deals with the problem of irreversibility – the problem in which a certain type of conduct from current generations results in outcomes from which future generations may not recover from at all.
  • Interest group transfers - regulation that results from efforts by self-interest groups to redistribute wealth in their favor, which may disguise itself as one or more of the justifications above.

Deregulation, regulatory reform and liberalization

The second half of the 20th century saw a wave of attempts to modify some existing regulatory structures and systematize the creation and review of new ones. A part of this was the deregulation movement.

A parallel development with 'deregulation' has been organized, ongoing programs to review regulatory initiatives with a view to minimizing, simplifying, and making more cost effective regulations. Such efforts, given impetus by the Regulatory Flexibility Act of 1980 in the United States, are embodied in the United States Office of Management and Budget's Office of Information and Regulatory Affairs, and the United Kingdom's Better Regulation Commission.

Cost-benefit analysis is frequently used in such reviews. In addition, there have been regulatory innovations, usually suggested by economists, such as emissions trading. Academic research on wedding economic theory with regulatory activity continues.

From other point of view, liberalization does not always imply deregulation, but more players in the market (desoligolipolization).

See also

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