The Extent of the Market and the Supply of Regulation

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...

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Bibliographic Details
Published in:The Quarterly journal of economics 2005-11, Vol.120 (4), p.1445-1473
Main Authors: Mulligan, Casey B., Shleifer, Andrei
Format: Article
Language:English
Subjects:
Administrative expenses
Censuses
Conscription
Economic models
Economic regulation
Fixed costs
Impact analysis
Jurisdiction
Military draft
Occupational licensing
Population
Population size
Regulation
Regulatory agencies
Regulatory legislation
Statutory law
Studies
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Summary: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.
ISSN:0033-5533
1531-4650
DOI:10.1162/003355305775097579