Regulatory burden and business dynamics: a preliminary analysis
| Published date | 03 September 2018 |
| DOI | https://doi.org/10.1108/JEPP-D-18-00027 |
| Pages | 279-289 |
| Date | 03 September 2018 |
| Author | J.R. Clark,Todd Nesbit |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Regulatory burden and business
dynamics: a preliminary analysis
J.R. Clark
University of Tennessee at Chattanooga, Chattanooga, Tennessee, USA, and
Todd Nesbit
Department of Economics, Ball State University, Muncie, Indiana, USA
Abstract
Purpose –Stigler (1971) first presented a theory of regulation in which the regulator eventually serves the
interests of the regulated rather than in the interest of the public good. In such an institutional environment,
one should expect to observe outcomes associated with reduced competitive pressures on existing firms.
The paper aims to discuss this issue.
Design/methodology/approach –In this paper, the authors use RegData, which quantifies regulatory
restrictions by industry, to determine whether and to what degree regulation reduces establishment entry and the
associatedjob creation andhow regulation impactsexisting establishment exitand job creation anddestruction.
Findings –The results, while not definitive, are supportive of Stigler’s theory of regulatory capture.
Originality/value –This paper adds to the small but growing empirical literature examining the effects of
cronyism more broadly. Prior studies of regulation have generally been either narrowly focused on a specific
regulation or employ less precise measures of the extent of regulation. By employing RegData as a measure of
regulatory restrictions by industry, this paper offers new insights on the impact of regu lation on business dynamics.
Keywords Regulation, Regulatory capture, Job creation, Job destruction
Paper type Research paper
1. Introduction
Researchers, particularly those of the public choice tradition, have long discussed and
examined the use of public policy not as a means to solve a market failure and enhance
societal well-being, but as a means to benefiting politically favored firms and industries.
Pro-business advocates –a distinct group from those who are pro-market –regularly call for
subsidies, tax incentives and regulations that protect them from “unfair”competition.
In order to enact such policies, though, the pro-business advocates generally need support
from groups that often make for strange bedfellows. In short, the bootlegger needs the
baptist (Yandle, 1983) in order to push through the favored policy. The well-meaning
“Baptists”in these cases generally argue for government intervention to correct for a
market failure or to restrict the behavior of greedy business leaders. The pro-business
bootleggers simultaneously emphasize the potential for greater economic prosperity and the
associated job creation that can result from enacting such policy, avoiding how the policy
artificially improves their bottom line.
While there exist a fair number of studies examining the impact of tax incentives and
subsidies on business formation and job creation, such studies of regulatory policy have
proven more elusive. The studies that do exist often focus on the effects of a specific
regulation or limited set of regulatory actions, such as water or air quality standards;
Greenstone (2002) provides a good summary of this work. However, given the thousands of
regulationsgoverning the actions of thousandsof firms in the USA, a broader and higher-level
analysis is helpful. Short of a handful of attempts (see Mulligan and Shleifer, 2005; Dawson
and Seater, 2013; Coffeyet al., 2012; Al-Ubaydli and McLaughlin, 2017),little has been done to
examine the broader implications of the full stock of regulations on the economy.
The current paper is an attempt to add to the literature examining the economic impacts
of the stock of regulations. Prior studies of the regulatory stock have often employed page or
word counts or digital file sizes of the Federal Register; however, use of the Federal Register
Journal of Entrepreneurship and
Public Policy
Vol. 7 No. 3, 2018
pp. 279-289
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-D-18-00027
Received 2 July 2018
Revised 12 July 2018
Accepted 12 July 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
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Regulatory
burden and
business
dynamics
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