Rescuing Regulation

Reza R. Dibadj

Description

The traditional debate on governmental regulation has run its course, with economically minded analysts pointing to regulation's inefficiency while those focused on justice purposefully avoid the economic paradigm to defend regulation's role in protecting consumers, workers, and society's disadvantaged. In Rescuing Regulation, Reza R. Dibadj challenges both camps. He squarely addresses the shortcomings of the conventional economic critique that portrays regulation as a waste, and also confronts those focused on justice to marshal economic arguments for public intervention against social inequities and abusive market behavior. Providing novel answers to the questions of why and how to regulate, Dibadj contends that the law and economics paradigm must not remain an apologist for laissez-faire public policy. He also demonstrates how incorporating the latest economics and revamping institutions can help improve our public agencies. Rescuing Regulation not only suggests ways to develop public institutions reflective of a democracy, but also broadly outlines how social science can inform normative legal discourse.

Preface
Acknowledgments

Part I. Conventional Polarities

        1. Traditional Perspectives
                     Definitions and History
                     Justifications for Regulation

        2.   Lambasting Regulation
                     Foundations of the Critique
                     Progeny
                           1. Chicago school
                           2. Contestability theory
                           3. Public choice

        3.   Where Is Society Left?
                     Direct effects: Industry Consolidation and Scandal
                     Indirect effects: Economic insecurity and the Retreat of "Publicness"

Part II. The Economic Case for Regulation

        4.   Beyond Flawed Assumptions . . .
                     Unraveling the Chicago school
                           1. Worshipping efficiency
                           2. Downplaying transaction costs
                           3. Ignoring behavioral biases
                           4. Preordaining initial entitlements
                           5. Normativity as science?
                     Rethinking Contractarianism
                           1. Some inconsistencies
                           2. Exalting the private

        5.   . . . Toward New Research
                     Post-Chicago Law and Economics
        &n

Sujets

• Droit public
• Company

Informations

• Publié par: State University of New York Press
• Date de parution: 01 février 2012
• Nombre de lectures: 0
• EAN13: 9780791481097
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Rescuing Regulation

REZA R. DIBADJ

Rescuing Regulation

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Rescuing Regulation

REZA R. DIBADJ

State University of New York Press

Published by State University of New York Press, Albany

© 2006 State University of New York

All rights reserved

Printed in the United States of America

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Library of Congress Cataloging-in-Publication Data

Dibadj, Reza R. Rescuing regulation / Reza R. Dibadj. p. cm. Includes bibiographical references and index. ISBN-10: 0-7914-6883-6 (hardcover : alk. paper) ISBN-13: 978-0-7914-6883-8 (hardcover : alk. paper) ISBN-13: 978-0-7914-6884-5 (pbk. : alk. paper) 1. Police power—Philosophy. 2. Industrial laws and legislation. 3. Industrial laws and legislation—Social aspects. 4. Trade regulation. 5. Trade regulation—Social aspects. I. Title.

K3840.D53 2006 343'.07—dc22

10 9 8 7 6 5 4 3 2 1

2005036227

Preface Acknowledgments

C ONTENTS

P ART  I. C ONVENTIONAL  P OLARITIES 1. Traditional Perspectives Definitions and History Justifications for Regulation 2. Lambasting Regulation Foundations of the Critique Progeny 1. Chicago school 2. Contestability theory 3. Public choice 3. Where Is Society Left? Direct Effects: Industry Consolidation and Scandal Indirect Effects: Economic Insecurity and the Retreat of “Publicness”

P ART T II. HE  E CONOMIC  C ASEFOR  R EGULATION 4. Beyond Flawed Assumptions . . . Unraveling the Chicago school 1. Worshipping efficiency 2. Downplaying transaction costs 3. Ignoring behavioral biases 4. Preordaining initial entitlements 5. Normativity as science? Rethinking Contractarianism 1. Some inconsistencies 2. Exalting the private

vii xi

1 3 3 8 15 15 17 17 21 21 25 25

31

41 43 43 43 45 50 52 54 57 57 61

vi

5.

C ONTENTS

. . . Toward New Research Post-Chicago Law and Economics Core Theory Behavioral Economics Special Problems of New-Economy Industries Some Commonalities

P ART A P III. ATH  F ORWARD 6. Substantive Reform Social Regulation: Rescuing Cost/Benefit Analysis Economic Regulation: Gaining Access to Bottlenecks Reachieving Publicness 1. Basic principles 2. Reforming the regulation of public corporations 7. Institutional Changes Limited Agencies Some Objections 1. Aren’t government actors biased? 2. Why not courts as frontline arbiters? 3. Isn’t this giving up on participatory democracy?

Afterword Notes Bibliography Index

67 68 71 73 79 81

85 87 87 91 98 98 104 113 113 115 116 118 120

127 131 181 211

P REFACE

The traditional debate on government regulation has run its course. On the one hand, so-called economically minded analysts point to regulation’s inefficiency, and hence futility, advocating instead for a society organized via private contract. On the other hand, those focused on “justice” often purposefully avoid the economic paradigm to focus on regulation’s role as a protector of consumers, employees, and society’s disadvantaged. I chal- lenge both camps by telling a different story about why we need to regu- late. To those readers who view government regulation as a waste of time and money, I try to build a case for regulation that squarely addresses the shortcomings of their conventional “economic” critique. To those who view the law and economics paradigm as an apology for laissez-faire public policy, I attempt to show that there is a different way to do law and economics—a path that can address social inequities and abusive market behavior. This may be an ambitious agenda, but a simple structure guides the argument. The book is organized into three principal sections, which attempt to guide the reader through a process of discovery: from (part 1) recognizing the staleness of the current pro- vs. antiregulation debate, to (part 2) the belief that there is a different way to do law and economics, to (part 3) a variety of specific ideas for logical regulatory reform. Within these sections, a series of questions—designed to build upon one an- other—are addressed:

1. What were the original justifications for regulation? 2. How were these justifications trashed and why? 3. Where does the regulatory status quo leave us as a society?

vii

viii

P REFACE

4. Were conventional economists correct in trashing regulation? 5. What is the new economic research telling us? 6. How can we create better regulatory law that accords with logic and with technological and economic reality? 7. How should we reform our regulatory institutions?

One chapter is devoted to each question. The book’s central ambition is to tell a new, untold story of why regulation must be an essential public policy tool. Whether and how regulation should be implemented in a particular instance will depend on contextual specifics. But its fundamental principles must be understood and improved upon, rather than simply dismissed. One overarching purpose has attracted me to this project: the ur- gent need to reassess the justifications for regulation, and in doing so, fill significant gaps in existing treatments. On the heels of a burst economic bubble that destroyed jobs and pensions—often highlighting market fail- ures and shattering faith in “the system”—public debate has emerged across the political spectrum around how to define a proper role for regulatory agencies. Hardly a day passes without some regulatory agency making national headlines. Recent writings in the business press have even begun to suggest that not enough regulation, or poor deregulation, 1 has led to the current economic crisis. Meanwhile, in the academy the law and economics paradigm, so powerful in the 1960s and 1970s, is today often met with skepticism. There is a need to argue for a new type of law and economics that can inform public debate on regulation. While there are a number of excellent books on regulation, none of them address the problem in the way I hope to. The most thought- provoking and trailblazing works, notably Alfred Kahn’sThe Economics of Regulationand Stephen Breyer’sRegulation and Its Reform, were written in the 1970s and 1980s. There is a need to build on their seminal contribu- tions by writing a book that treats regulation holistically while at the same time incorporating new ideas and research findings. Other success- ful efforts, such as W. Kip Viscusi et al.’s,Economics of Regulation and Antitrust and Jean Tirole’sThe Theory of Industrial Organization, are in- tended primarily as university economics textbooks and are not designed to tell the story of regulation to a broader audience. Still other works on regulation delve into fascinating, but narrower, aspects of the regulatory state—for instance, how the judiciary should interpret regulatory statutes,

Preface

ix

whether natural monopolies should be regulated, or how to manage en- vironmental and health care risks. For their part, the vast majority of books on law and economics deals with the subject according to the strictures of neoclassical price theory. Those efforts which begin chal- lenging the neoclassical orthodoxy do not seek to offer normative propos- als in the regulatory context. In sum, even though there exist several impressive books on both regulation and law and economics, I have not found one that purports to tackle the problems I propose using the methods outlined. Beyond books, there are a number of important articles in the legal and economics litera- ture, but these are not easily digestible unless one has spent years special- izing in the field. Part of my enthusiasm for writingRescuing Regulationthus stems from the desire to begin filling a big hole in the existing literature. Academic lawyers and economists who work within the law and eco- nomics paradigm will hopefully see a new, different treatment that takes issue with the conventional wisdom of neoclassicism. Those lawyers and economists who do not work at the intersection of law and economics— often because of their mistrust of the other discipline’s supposed normative bent or inelegant analytic tools—should be interested in a new thesis on why and how economics should inform law. Economics, or at least a dif- ferent kind of economics than has traditionally been associated with the law and economics movement, must fruitfully shape regulatory policy. On a more philosophical level, the book should appeal to those who are interested in how the social sciences can affect normative legal dis- course and public policy. Indeed, the narrative of the misunderstood story of regulation unfolds in a manner that should be easily understandable to social science scholars outside economics and law. No advanced math- ematical or legal background is necessary, with many of the more quan- titative economic and specialized legal references appearing in endnotes, making them available to the interested researcher without impeding the development of the overall story. Beyond its scholarly audience,Rescuing Regulationalso serve as supplemental reading in law and business can schools, as well as undergraduate and graduate economics classes. The book should also be of use to government public policy analysts. Above all, my fervent hope is that it will also have an appeal to a larger group of informed citizens interested in some of the most pressing administrative issues: like it or not, regulatory agencies such as the Federal Communications Commission (FCC), Securities and Exchange Commission