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The Extent of the Market and the Supply of Regulation


  • Casey B. Mulligan
  • Andrei Shleifer


We present a model in which setting up and running a regulatory institution takes a fixed cost. As a consequence, the supply of regulation is limited by the extent of the market. We test three implications of this model. First, jurisdictions with larger populations affected by a given regulation are more likely to have it. Second, jurisdictions with lower incremental fixed costs of introducing and administering new regulations should regulate more. This implies that regulation spreads from higher to lower population jurisdictions, and that jurisdictions that build up transferable regulatory capabilities should regulate more intensely. Consistent with the model, we find that higher population U. S. states have more pages of legislation and adopt particular laws earlier in their history than do smaller states. We also find that the regulation of entry, the regulation of labor, and the military draft are more extensive in countries with larger populations, as well as in civil law countries, where we argue that the incremental fixed costs are lower.

Suggested Citation

  • Casey B. Mulligan & Andrei Shleifer, 2005. "The Extent of the Market and the Supply of Regulation," The Quarterly Journal of Economics, Oxford University Press, vol. 120(4), pages 1445-1473.
  • Handle: RePEc:oup:qjecon:v:120:y:2005:i:4:p:1445-1473.

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    References listed on IDEAS

    1. McCleary, Rachel & Barro, Robert, 2003. "Religion and Economic Growth across Countries," Scholarly Articles 3708464, Harvard University Department of Economics.
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    3. Olds, Kelly, 1994. "Privatizing the Church: Disestablishment in Connecticut and Massachusetts," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 277-297, April.
    4. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    5. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    6. Casey B. Mulligan & Ricard Gil & Xavier Sala-i-Martin, 2004. "Do Democracies Have Different Public Policies than Nondemocracies?," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 51-74, Winter.
    7. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 158-183, December.
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    9. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766, June.
    10. Casey B. Mulligan & Andrei Shleifer, 2004. "Population and Regulation," NBER Working Papers 10234, National Bureau of Economic Research, Inc.
    11. Robert Barro & Rachel M. McCleary, 2003. "International Determinants of Religiosity," NBER Working Papers 10147, National Bureau of Economic Research, Inc.
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