21 Pages Posted: 30 Jun 2018 Last revised: 27 Jul 2018
Date Written: June 29, 2018
Regulation plays a central role in law and economics, empirical legal studies, and finance. The causes, effects, and even the timing of regulation remain contested. But in spite of the centrality of regulation to academic inquiry and policy evaluation, there is no universally accepted measurement of change in regulatory complexity, intensity, and burdens faced by private industry at different points in time. This article describes previous efforts to measure regulation and those approaches’ limitations. We develop a novel approach based on the assumption that the burdensomeness of regulations is reflected in the response of regulated firms to those regulations, specifically changes in expenditures on employees whose jobs entail navigating, complying with and shaping regulations—principally legal and compliance employees—scaled either by total employment costs or revenue.
The new regulatory index proposed in this article (or minor variations thereof) can inexpensively and consistently measure change in regulatory burdens for dozens of sectors over the last 30 to 70 years. It could therefore become a powerful tool for empirical studies of legal change.
Using this measure, we find evidence that in the years after the enactment of Dodd Frank, regulatory burdens increased substantially more in financial services than in the overall economy, or in the real estate sector (which also contracted during the mortgage crisis of 2007-2009, but was not regulated like finance). Moreover, the subsectors of financial services which were targeted most heavily by Dodd Frank saw the largest increase in regulatory burdens.
A PowerPoint presentation of this paper is available at https://ssrn.com/abstract=3205589.
Keywords: Regulation, Deregulation, measurement, Dodd Frank, Compliance, Lawyers, Legal Market, Rules, RegData, CFR, U.S. Code, Financial Crisis, Financial Regulation, Index, Regulatory Index
JEL Classification: B4, C1, C43, C81, D2, D61, G01, G18,G2, G28, G38, H7, H1, K2, L5
Suggested Citation: Suggested Citation