Edited by Robert J. Brent
Chapter 8: Regulation and Cost–Benefit Analysis
Franco Papandrea 1 Introduction Regulation refers to rules, ordinances, orders, standards, conditions or principles promulgated by governments or delegated authorities to prescribe or proscribe the behaviour or conduct of private sector agents with the goal of promoting and enhancing the economic and social well-being of society. Regulations are generally binding instruments enforceable by law and breaches are typically subject to penalties. All levels of government (federal, state and local) as well as delegated non-government organisations, such as standard-setting bodies, and industry and professional associations engage in regulatory activities that affect a very wide range of economic and social pursuits. All societies are governed by rules and conventions of behaviour that seek to promote the common good or public interest. The coverage of rules expands as societies become more complex and members engage in an increasing range of activities. But with increased complexity comes an increased risk that some regulations, although based on good intentions, will fail to deliver all or part of the sought-after benefits, and might even result in outcomes that worsen society’s well-being. Faced with such a problem, scholars and legislators have been devoting considerable attention to the development of criteria and tools to help assess the desirability and efficiency of regulatory instruments. Economists in particular were drawn to the study of regulatory issues in the period after the Second World War when governments in the Western developed world increasingly enacted interventionist economic policies in the pursuit of full employment and prevention of severe macroeconomic fluctuations such as...
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