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New thinking on regulation

I was of the view that all the innovations in regulation were occurring in the developing world (or by scholars working on developing country regulation). I was wrong. It appears that very interesting work is going on at Harvard, possibly in response to the US crisis in regulation:

“Weak capture” (defined as special-interest influence compromising “the capacity of regulation to enhance the public interest, but the public interest is still being served by regulation”) may be nearly ubiquitous. But where some net social benefit remains, so does the case for regulation—perhaps modified, but not abandoned. Resorting to analogy again, Carpenter and Moss suggest consulting the history of medicine:

Just as physicians once believed that the only effective way to treat infection was to cut it out surgically, it is commonplace today to believe that capture can only be treated by “amputating” the offending regulation. Fortunately, the evidence that emerges in this volume suggests that less drastic remedies may be equally if not more effective, and that some are already working—like the body’s own immune system—almost invisibly behind the scenes.

The Tobin research is a call for “reaching a new level in the treatment of regulatory capture.”

That deeply empirical research, which identifies certain regulatory bodies with “surprisingly strong immune systems,” yields all sorts of practical suggestions for mitigating capture: consumer empowerment programs; cultivating diverse, external expert advisers; expanding federal review of regulatory actions to include inaction (where an agency has been stymied by an interested party). Some of these techniques have already been implemented—for example, by building a consumer advisory board into the new Consumer Financial Protection Bureau.

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