Government regulation is extensive in all rich and middle-income countries. It transcends not only levels of economic development, but also cultures, legal traditions, levels of democratization, and all other factors economists use to explain differences among countries. There is surely a lot of variation across countries, but it pales by comparison with the raw fact of ubiquity. Why is there so much government regulation? Why has it grown?
I begin this lecture by reviewing the standard theories of economic regulation, and arguing that they fail to account for the basic facts of regulation. I then propose “The Enforcement Theory of Regulation,” which sees regulation as one of several alternative strategies of social control of business, of which the most prominent is dispute resolution by courts. Because such resolution is often costly, unpredictable, and ineffective, regulation, with all its faults, emerges as the more efficient strategy for enforcing desirable conduct.