On the Political Economy of Complexity
46 Pages Posted: 22 Jan 2014
Date Written: December 31, 2013
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: Suggested Citation