Institutions and Regulatory Reforms for the Age of Governance
Edited by Jacint Jordana and David Levi-Faur
Chapter 2: W(h)ither the Economic Theory of Regulation? What Economic Theory of Regulation?
Anthony Ogus* INTRODUCTION The first part of the title to this chapter should provoke an obvious sceptical question: what is a jurist doing, writing a chapter on economic theory for an audience or readership made up primarily of political scientists? My answer is twofold: the way in which economists have approached regulation has had a profound impact on regulatory scholarship and policy; but an outsider is well placed to comment on that impact, particularly if that person comes – like myself – with a lawyer’s understanding of what has been happening to regulation within recent years. One interpretation of my title suggests a simple, but plausible, hypothesis. The economic theory of regulation, as conventionally understood, was developed during the 1960s and 1970s and did much to explain how the regulation of that period came into being and why it failed. The theory is much less adept at explaining the phenomenon of deregulation which occurred in the 1980s and 1990s and, as a consequence, its influence is much in decline. This simple story has an intuitive appeal, but, as the second part of my title suggests, it is too simple. In the first place, there is some ambiguity about what is to be regarded as ‘theory’. It should not be confused with economic analysis, which uncontroversially has a major role to play in regulatory policy-making. In any event, there has been no single economic theory; rather, several with different tools and with different implications. Further, while some of the theories are purely predictive,...
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