17 Feb 2015

The paranoid foundations of regulation

I'm in Budapest for a regulation training workshop. I just heard a long presentation of all the accounting gimmicks that one national regulator chases in its attempt to balance the "needs of investors" and "concerns of customers."

Ignoring the interesting question (why are you in the middle, then, with your assumptions on needs and concerns), I came to a more interesting realization, i.e., that regulation is built on the assumption that customers are unwilling to pay the price of good service and that investor owned utilities (IOUs) are "out to get" customers' money.

Move into a world of where there's enough money and IOUs are not crooks, and the mood will lighten up.

Bottom Line: It's not a good idea to start a relationship with one side calling the other "thief" while the other replies with "cheapskate."


  1. i am a regular (monthly) reader of your blog . i find it very informative. but i have a question for you ,
    would you publish (or write) something in this blog which is against your self interest( or against the profession of economics) , even if its truth ?

    1. Sure. Truth is in my self interest ;)

  2. The foundation of regulation is to do things where Government compulsive powers can do things more cheaply than consumers can do by individual transactions and contracts, such as standards, monopoly pricing, credit checks of essential service suppliers.
    Didn't Coase settle that a while ago?

    1. I'm not sure about Coase, but I agree on the benefits of reducing collective action costs via regulation. The trouble, I think, is *assuming* that collective action is necessary all the time, when it may not always be. In that sense, "default regulation" may be inefficient compared to stepping back to reassess its benefits, esp. when one considers all the margins on which regulation is possible -- vs useful (cf, "deregulation")


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