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Regulatory Fog: The Informational Origins of Regulatory Persistence

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  • Patrick Warren
  • Tom Wilkening

Abstract

Compared with other types of policy, regulation is very persistent, even when inefficient. We propose an explanation for regulatory persistence based on regulatory fog,the phenomenon by which regulation obscures information about the e ects of deregulation. We construct a dynamic model of regulation in which the underlying need for regulation varies stochastically, and regulation undermines the regulator's ability to observe the state of the world. Compared to the full-information benchmark, regulation is highly persistent, often lasting inde nitely. The regulatory fog e ect is robust to a broad range of partially informative policies and can be quite detrimental to social welfare.

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File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0011/801020/1113.pdf
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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1113.

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Length: 35 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:mlb:wpaper:1113

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Web page: http://www.economics.unimelb.edu.au
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Related research

Keywords: Regulation; Information; Experimentation;

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  1. Kenneth D. Boyer, 1987. "The Costs of Price Regulation: Lessons from Railroad Deregulation," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 408-416, Autumn.
  2. Pindyck, Robert S., 2000. "Irreversibilities and the timing of environmental policy," Resource and Energy Economics, Elsevier, vol. 22(3), pages 233-259, July.
  3. Robert N. Rubinovitz, 1993. "Market Power and Price Increases for Basic Cable Service Since Deregulation," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 1-18, Spring.
  4. Jinhua Zhao & Catherine L. Kling, 2000. "Policy Persistence in Environmental Regulation," Center for Agricultural and Rural Development (CARD) Publications 00-wp257, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  5. Nancy L. Rose, 1985. "The Incidence of Regulatory Rents in the Motor Carrier Industry," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 299-318, Autumn.
  6. Smith, L, 1996. "Social Learning in a Changing World," Working papers 96-34, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Dirk Bergemann & Juuso Valimaki, 2006. "Bandit Problems," Cowles Foundation Discussion Papers 1551, Cowles Foundation for Research in Economics, Yale University.
  8. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
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