Monday, December 10, 2012

Knowledge Problem

Regulatory Fog: The Role of Information in Regulatory Persistence

Patrick Warren & Tom Wilkening
Journal of Economic Behavior & Organization, December 2012, Pages 840–856

Abstract: 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 regarding the value of counterfactual policies. We construct a dynamic model of regulation in which the underlying need for regulation varies stochastically, and regulation undermines the social planner's ability to observe the state of the world. Compared to a full-information benchmark, regulation is highly persistent, often lasting indefinitely. Regulatory fog is robust to a broad range of partially informative policies and can be quite detrimental to social welfare. Regulatory experiments, modeled as costly and imperfect signals of the underlying state, do not eliminate the effects of regulatory fog. We characterize their effects and provide a framework for choosing amongst a set of potential regulatory experiments.

4 comments:

Anonymous said...

Page not found, you butthead!

Andrew said...

Here it is:

http://www.usc.edu/schools/business/FBE/seminars/papers/AE_4-2-10_WARREN.pdf

Jim Oliver said...

My guess is that this is big part of the cost problem in healthcare.

Tom said...

No doubt "regulatory fog" contributes to the problem, but I will bet the major factor is the "preserve my budget" syndrome.