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The costs and benefits of regulation : implications for developing countries

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Author Info

  • Guasch, J. Luis
  • Hahn, Robert W.

Abstract

The past two decades have seen an unparalleled rise in new health, safety, and environmental regulation in industrial countries. At the same time, insome countries there has been substantial economic deregulation of several industries (including airlines, railroads, trucking, energy, telecommunications, and financial markets). Developing countries are engaged in deregulating some sector of the economy and devising new regulatory frameworks for others. After reviewing the literature, the authors provide an overview of the costs and benefits of regulation throughout the world, highlight the potential gains from reform of regulation and deregulation in both industrial and developing countries, draw lessons from experience with government regulation, and suggest how to improve regulation in developing countries. They find that it is possible to explore systematically the cost and benefits of regulatory activities using standard economic analysis. They conclude that regulation - especially regulation aimed at controlling prices and entry into markets that would otherwise be workably competitive - can limit growth and significantly reduce economic welfare. Although unnecessary process regulation can hurt the economy, social regulations may significantly benefit the average consumer. But some regulations do not meet goals effectively and may sometimes reduce living standards. Developing countries can consider several regulatory policies, tools, and frameworks to improve their approach to regulation. What they choose will depend on available administrative expertise and resources, as well as political constraints and economic impacts. Generally, local and national capabilities for evaluating regulation need to improved. Regulation is not generally undesirable, but it often has undesirable economic consequences, which result in part from political forces to redistribute wealth. These forces can be mitigated by more sharply evaluating in consequences and tradeoffs of proposed regulations.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1773.

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Date of creation: 30 Jun 1997
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Handle: RePEc:wbk:wbrwps:1773

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Keywords: Administrative&Regulatory Law; Environmental Economics&Policies; Economic Theory&Research; Public Sector Economics&Finance; Trade Finance and Investment; Environmental Economics&Policies; Economic Theory&Research; Administrative&Regulatory Law; Public Sector Economics&Finance; Insurance&Risk Mitigation;

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References

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  1. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
  2. Robert W. Hahn & Robert E. Litan, 2009. "Improving Regulatory Accountability," Books, American Enterprise Institute, number 24578, 7.
  3. Winston, Clifford, 1985. "Conceptual Development in the Economics of Transportation: An Interpretive Survey," Journal of Economic Literature, American Economic Association, vol. 23(1), pages 57-94, March.
  4. Tracy R. Lewis, 1996. "Protecting the Environment When Costs and Benefits Are Privately Known," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 819-847, Winter.
  5. Klein, Michael, 1996. "Competition in network industries," Policy Research Working Paper Series 1591, The World Bank.
  6. Jarrell, Gregg A, 1984. "Change at the Exchange: The Causes and Effects of Deregulation," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 273-312, October.
  7. Braeutigam, Ronald R & Noll, Roger G, 1984. "The Regulation of Surface Freight Transportation: The Welfare Effects Revisited," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 80-87, February.
  8. Antonio Estache & O. Chisari & C. Romero, 1999. "Winners and Losers from the Privatization and Regulation of Utilities: Lessons from a General Equilibrium Model of Argentina," ULB Institutional Repository 2013/44005, ULB -- Universite Libre de Bruxelles.
  9. McMullen, B Starr & Stanley, Linda R, 1988. "The Impact of Deregulation on the Production Structure of the Motor Carrier Industry," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 299-316, April.
  10. Clifford Winston, 1998. "U.S. Industry Adjustment to Economic Deregulation," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 89-110, Summer.
  11. Koedijk, C.G. & Kremers, J., 1996. "Market opening, regulation and growth in Europe," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3108676, Tilburg University.
  12. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  13. Winston, Clifford, 1993. "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1263-89, September.
  14. Good, David H & Roller, Lars-Hendrik & Sickles, Robin C, 1993. "U.S. Airline Deregulation: Implications for European Transport," Economic Journal, Royal Economic Society, vol. 103(419), pages 1028-41, July.
  15. Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
  16. Christainsen, Gregory B & Haveman, Robert H, 1981. "Public Regulations and the Slowdown in Productivity Growth," American Economic Review, American Economic Association, vol. 71(2), pages 320-25, May.
  17. repec:reg:rpubli:234 is not listed on IDEAS
  18. S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
  19. Taylor, William E & Taylor, Lester D, 1993. "Postdivestiture Long-Distance Competition in the United States," American Economic Review, American Economic Association, vol. 83(2), pages 185-90, May.
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