Economic regulation

Regulatory economics is the economics of regulation. It is the application of law by government or independent administrative agencies for various purposes, including remedying market failure, protecting the environment, centrally-planning an economy, enriching well-connected firms, or benefiting politicians (see Regulatory capture). It is not considered to include voluntary regulation that may be accomplished in the private sphere.

Regulation is generally defined as legislation imposed by a government on individuals and private sector firms in order to regulate and modify economic behaviors. Conflict can occur between public services and commercial procedures (e.g. maximizing profit), the interests of the people using these services (see market failure), and also the interests of those not directly involved in transactions (externalities). Most governments, therefore, have some form of control or regulation to manage these possible conflicts. The ideal goal of economic regulation is to ensure the delivery of a safe and appropriate service, while not discouraging the effective functioning and development of businesses.

For example, in most countries, regulation controls the sale and consumption of alcohol and prescription drugs, as well as the food business, provision of personal or residential care, public transport, construction, film and TV, etc. Monopolies, especially those that are difficult to abolish (natural monopoly), are often regulated. The financial sector is also highly regulated.

Regulation can have several elements:

Not all types of regulation are government-mandated, so some professional industries and corporations choose to adopt self-regulating models. There can be internal regulation measures within a company, which work towards the mutual benefit of all members. Often, voluntary self-regulation is imposed in order to maintain professionalism, ethics, and industry standards.

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