The role of regulation


Regulation clearly has a place in the management of the behaviour of firms. This is uncontroversial, even among most ardent free marketeers. Few marketplaces satisfy the perfect market paradigm, and regulation to contain anti-competitive behaviour and abuse of monopoly power is well established in most developed market economies. Externalities are well understood and a variety of mechanisms are employed, some better than others, to modify business behaviour that would otherwise harm the greater good. Regulation addresses the failure of markets to deliver optimal outcomes as a consequence of shortcomings in competition; to address the failure of conventional markets to cope with environmental issues. Regulation has been introduced to make markets work better, for example by ensuring transparency, to reduce imbalances in information between parties to an exchange, or to create frameworks that reduce the cost of transaction.

The Escondido Framework also recognises that regulation arises for reasons that sit outside conventional economic frameworks.  Regulation also arises as an expression of the second of the three currencies, influence: people achieving outcomes through politics. Legislation surrounding workers’ rights, planning rules that allow communities to restrict developments in their localities, and rules designed to protect traditional ways of life that would otherwise become economic, are all reflections of popular will, expressed at some point through the ballot box or by influence of one sort or another on governments.

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