Sunday, June 06, 2010

Regulation vs. none - the role of government

There is much evidence that "top down" regulation does not work as well as regulation which appeals to self-interest. For example setting mileage standards for cars is slower and less effective than raising fuel prices through taxes. Yet, so many in government keep on believing in top down regulation. This is because legislators and regulators do not understand how business works, nor its complexity. As a result, regulated companies spend much time learning how to get around the regulations and this results in the "law of unintended consequences."

No comments: