Allocating Law-Making Powers: Self-Regulation vs. Government Regulation

39 Pages Posted: 18 Dec 2005

See all articles by Peter Grajzl

Peter Grajzl

Washington and Lee University - Department of Economics; CESifo

Peter Murrell

University of Maryland - Department of Economics

Date Written: November 3, 2005

Abstract

Although a common institutional arrangement, self-regulation as an alternative to direct government regulation has received relatively little attention from economists. This paper uses a framework inspired by property rights theory to analyze the allocation of regulatory authority. In a model of a regulatory process with bargaining, the authority to amend enabling legislation can be either consolidated within the government or extended to producers in a self-regulatory regime. The paper delineates the welfare implications of regulatory regime choice, identifies the conditions that lead a government to delegate or to centralize regulatory authority, and examines whether the government's institutional choice is efficient. Self-regulation is efficient when there is much uncertainty about the results of institutional implementation, when the government is populist, or when society is not polarized. Inefficient use of central regulation is more likely than inefficient use of self-regulation. A range of examples illustrates the model, identifying those features of legal traditions that explain cross-country variation in regulatory regime choice, illuminating the contrast in regulatory practice between the progressive era and the New Deal, and characterizing the mechanisms of intervention used under fascism.

Keywords: Self-regulation, government regulation, incomplete contracts, progressive era, New Deal, fascist economic systems, common law, civil law

JEL Classification: D7, H1, K0, L5, P5

Suggested Citation

Grajzl, Peter and Murrell, Peter, Allocating Law-Making Powers: Self-Regulation vs. Government Regulation (November 3, 2005). Available at SSRN: https://ssrn.com/abstract=870888 or http://dx.doi.org/10.2139/ssrn.870888

Peter Grajzl

Washington and Lee University - Department of Economics ( email )

Lexington, VA 24450
United States

HOME PAGE: http://home.wlu.edu/~grajzlp/

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Peter Murrell (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3476 (Phone)
301-405-3542 (Fax)

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