Self-Regulation and Innovation

Abstract

Self-regulation—governance of firm behavior by private entities—has a long history both in the United States and globally, and there is an extensive literature on the topic. But there has been far less attention paid to the role self-regulation can play in spurring and enabling innovation and growth within emerging industries. These industries—both currently ascendant ones such as hydrogen and artificial intelligence, as well as formerly new (but now well established) activities in hydraulic fracturing and Internet communications—plausibly benefit from self-regulation’s ability to coordinate economic actors and reassure often skeptical publics. Examining the ways that self-regulation impacts this special type of industry is important both to expand the self-regulation literature to account for an explosion of innovative industries in recent years and to strengthen the innovation literature, which explores how other factors, such as intellectual property rights and public incentives, spur or stifle innovation.

Relying on a comprehensive analysis of existing literature and our own case studies, we identify the attributes of self-regulatory regimes that seem to support innovation and the scaling up of operations. Our case studies show that innovative, emerging industries rely on self-regulation to provide an important balance of certainty and flexibility; fill substantive and jurisdictional regulatory gaps as industries emerge; provide healthy competition among standards to produce effective and efficient standards; and simultaneously produce standards within multiple components of a networked. We also show that the best self-regulatory regimes are complemented by public governance, since pure self-regulation can leave substantive gaps and pose risks of capture and anti-competitive behavior that can lead to more heavy-handed public regulation or reputational crises. Overall, our research draws attention to the need for careful coordination of a public-private standards strategy for the many industries we will need to solve many of the world’s problems.

Keywords: George Mason University Antonin Scalia Law School Law & Economics Center Research Roundtable on Industry Self-Regulation, innovation, self-regulation, private standards, hydrogen, Internet, fracking, cannabis, network effects, coordination challenges

JEL Classification: self-regulation, innovation, regulation, hydrogen, AI, LLMs, standard-setting organizations, law and