On the Political Economy of Complexity

46 Pages Posted: 22 Jan 2014

See all articles by Shmuel Nitzan

Shmuel Nitzan

Bar-Ilan University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Uriel Procaccia

Hebrew University of Jerusalem - Faculty of Law

Joseph Tzur

Bar-Ilan University

Date Written: December 31, 2013

Abstract

A substantial number of regulatory frameworks are commonly viewed by impartial observers as inordinately complex. Is there an explanation for this phenomenon? Employing a partial equilibrium model, this paper approaches the problem of complexity from a political-economy vantage point. It underscores some hitherto unexplored ways in which complexity serves the narrow interests of some market agents and sets up effective barriers to entry to their competitors. These rent-inducing barriers often take the form of rapid and extensive supplements and changes in the regulatory environment, which make it hard for smaller market agents to adjust and maintain their competitive edge. Whereas regulatory schemes are normally conceived as enhancing transparency, and changes in these schemes are usually associated with salutary reformative agendas, this Article underscores the dark side of both phenomena by focusing on the anti-competitive features of regulation and reform and by clarifying the role of complexity in enhancing and preserving the narrow interests of certain market participants.

Keywords: regulation, barriers to entry, accounting, securities regulation, the market of charters, race to the top, race to the bottom

JEL Classification: D700, K000

Suggested Citation

Nitzan, Shmuel and Procaccia, Uriel and Tzur, Joseph, On the Political Economy of Complexity (December 31, 2013). CESifo Working Paper Series No. 4547. Available at SSRN: https://ssrn.com/abstract=2381929

Shmuel Nitzan (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972.3.531.8930 (Phone)
+972.3.535.3180 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Uriel Procaccia

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 91905
Israel

Joseph Tzur

Bar-Ilan University ( email )

Ramat Gan
Ramat Gan, 52900
Israel

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