Regulatory Burden and Business Dynamics: A Preliminary Analysis

Posted: 10 Dec 2018

See all articles by J. R. Clark

J. R. Clark

The University of Tennessee at Chattanooga

Todd Nesbit

West Virginia University - College of Business & Economics

Date Written: August 13, 2018

Abstract

Purpose – Stigler (1971) first presented a theory of regulation in which the regulator eventually serves the interests of the regulated rather than in the interest of the public good. In such an institutional environment, one should expect to observe outcomes associated with reduced competitive pressures on existing firms.The paper aims to discuss this issue.

Design/methodology/approach – In this paper, the authors use RegData, which quantifies regulatory restrictions by industry, to determine whether and to what degree regulation reduces establishment entry and the associated job creation and how regulation impacts existing establishment exit and job creation and destruction.

Findings – The results, while not definitive, are supportive of Stigler’s theory of regulatory capture.

Originality/value – This paper adds to the small but growing empirical literature examining the effects of cronyism more broadly. Prior studies of regulation have generally been either narrowly focused on a specific regulation or employ less precise measures of the extent of regulation. By employing RegData as a measure of regulatory restrictions by industry, this paper offers new insights on the impact of regulation on business dynamics.

Keywords: Regulation, Regulatory Capture, Job Creation, Job Destruction

Suggested Citation

Clark, Jeff R. and Nesbit, Todd, Regulatory Burden and Business Dynamics: A Preliminary Analysis (August 13, 2018). Available at SSRN: https://ssrn.com/abstract=3251515

Jeff R. Clark (Contact Author)

The University of Tennessee at Chattanooga ( email )

Department of Economics
Suite 313 Fletcher Hall
Chattanooga, TN 37403-2598
United States

Todd Nesbit

West Virginia University - College of Business & Economics ( email )

Morgantown, WV 26506-6025
United States

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