Regulatory Fog: The Informational Origins of Regulatory Persistence

Patrick Warren and Tom Wilkening

No 1113, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: Compared with other types of policy, regulation is very persistent, even when inefficient. We propose an explanation for regulatory persistence based on regulatory fog,the phenomenon by which regulation obscures information about the e ects of deregulation. We construct a dynamic model of regulation in which the underlying need for regulation varies stochastically, and regulation undermines the regulator's ability to observe the state of the world. Compared to the full-information benchmark, regulation is highly persistent, often lasting inde nitely. The regulatory fog e ect is robust to a broad range of partially informative policies and can be quite detrimental to social welfare.

Keywords: Regulation; Information; Experimentation (search for similar items in EconPapers)
JEL-codes: D82 D83 L51 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:1113

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