Regulatory Competition: A Primer
Government regulation is often perceived as a good way to address problems that are believed to be caused by market failure. However, regulations can also increase the cost of doing business and make products more expensive for consumers. Over the course of many years regulations can easily grow beyond their original intent, to the point of creating real economic drag. A solution to this problem, surprisingly, may be more regulators. A given government jurisdiction—local, state, or federal—can provide regulatory alternatives to compete with those of another government. Regulatory competition can attract more businesses and jobs, yield regulations that are more efficient and less expensive, and thereby provide more options to consumers.
This paper provides a brief overview of how regulatory competition can provide better outcomes for both businesses and consumers. It also outlines three major kinds of regulatory regimes, and addresses the question of which of these best allows for competition among regulators.