Tue, 10 May 2005

On the Impossibility of Successfully Regulating Businesses

Many businesses are regulated by one agency or another. For example, the Bureau of Alcohol, Tobacco, and Firearms. Or another, the Federal Communications Commission. Or another, the Food & Drug Administration.

The trouble with any of these regulatory agencies is that they have two basic choices: regulate from a position of ignorance, or regulate using experts (or any point between). If they choose ignorance, then the business may well get away with things it shouldn't, or be prevented from doing things that cause no harm. If they choose experts, well, where do those experts come from? They come from the industry, in which case you have to wonder if they'll be willing to regulate their former employer. Or, they come from academia. The trouble is that, once hired by the regulatory agency, there is a huge incentive for the regulated company to bribe the employee with the offer of a higher-paying job once they've influenced legislation in the company's favor.

Obviously, regulation is still possible, and goes on every day. I suggest that that regulation is not as successful as the creators of the regulation promised it would be.

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