Public interest theory
The traditional view holds that governments regulate to raise social welfare when markets fail through monopoly, externalities, information asymmetry or public goods. Critics note that it does not explain why regulation so often misses that goal.
Capture and the economic theory
George Stigler (1971) argued in 'The Theory of Economic Regulation' that regulation is usually acquired by an industry and designed for its benefit, because small organised producers gain a lot while costs are spread thinly across consumers. Sam Peltzman (1976) added that regulators balance groups to maximise political support.
Wilson's typology
- Majoritarian politics: diffuse costs and benefits
- Client politics: concentrated benefits, diffuse costs, as in import quotas or occupational licensing; capture risk is highest
- Entrepreneurial politics: concentrated costs, diffuse benefits, as in environmental and safety rules; needs policy entrepreneurs
- Interest-group politics: concentrated costs and benefits, as in labour relations
Types of regulation
Economic regulation covers entry, prices and quality, while social regulation covers environment, safety and consumer protection. By instrument, rules are command-and-control or market-based.
Reform
Rising compliance costs led to regulatory impact analysis, sunset clauses and negative-list approaches. Korea passed its Framework Act on Administrative Regulations in 1997 and a Regulatory Reform Committee reviews new rules.
References
- Stigler, G. J. (1971). The theory of economic regulation. Bell Journal of Economics and Management Science, 2(1), 3-21.
- Peltzman, S. (1976). Toward a more general theory of regulation. Journal of Law and Economics, 19(2), 211-240.
- Wilson, J. Q. (Ed.). (1980). The Politics of Regulation. Basic Books.
- Baldwin, R., Cave, M., & Lodge, M. (2012). Understanding Regulation: Theory, Strategy, and Practice (2nd ed.). Oxford University Press.
- 최병선. (1992). 『정부규제론』. 법문사.