Oxford review of economic policy

Regulation

Such approaches, pioneered in the Netherlands and endoresed by the British Better Regulation Task Force (now the Better Regulation Commission), are likely to fail, and may be counterproductive. Indeed, in many areas of the economy, regulation is actually necessary for the competetive markets to function.

Dieter Helm argues that while there are good reasons to believe that regulation will be over-supplied, and that the regulatory system is open to capture by vested interests, there is very little hard empirical evidence to back up these claims.

Rather than focus on such crude red-tape-cutting initiatives, Dieter Helm argues that the priority should be in the design of regulation - when, where, and how to regulate. He argues that market-based instruments, such as environmental taxes and trade permits, are not only usually more efficient in their own right, but they have the very great advantage over traditional command-and-control approaches in that market-based instruments are much more resistant to capture by vested interests. Preventing lobbyists bending regulation to suit vested interests should be a core focus on regulatory reform.

Thus, rather than concentrating on setting out basic principles (the so-called 'five principles of good regulation') - which typically lack solid content - and on processes like Regulatory Impact Assessments, regulatory reform should concentrate on targeting market-based instruments and creating greater independence for regulatory bodies.

Dieter Helm said:

'The British debate about red tape and regulatory reform, has concentrated too much on processes and too little on outcomes, and too much on aggregate targets, and too little on detailed design. Market-based instruments provide a real opportunity to reduce the growth of regulation and squeeze out vested interests and lobby groups.'

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Other articles in the issue include:

Regulation and Productivity Performance: Nicholas Crafts

Regulatory Capture: A Review: Ernesto Dal Bo

Regulation by Prices, Quantities, or Both: A Review of Instrument Choice: Cameron Hepburn

Network Regulation: Simon Cowan Measuring and Managing the Costs of Red Tape: A Review of Recent Policy Developments: Tim Keyworth

Regulatory Policy: OECD Experience and Evidence: Nick Malyshev

* Regulation, edited by Dieter Helm, Oxford Review of Economic Policy, Vol. 22, No. 2, Summer 2006.

Further information on this and other issues of the journal is available from Alison Gomm at the Oxford Review of Economic Policy, Park End Central, 40-41 Park End Street, Oxford, OX1 1JD, telephone 0044 1865 792212, fax 0044 1865 251172, email econrev@herald.ox.ac.uk.

In any reference to the journal or an article in it, please mention that the Oxford Review of Economic Policy is published by Oxford University Press.


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