A bureaucratic theory of regulation

Abstract

Not all modern regulation is explained by existing regulatory theories. A central purpose of this paper has been to demonstrate how and to what extent regulation of the private sector benefits advocates of growth in the public sector. A basic conclusion of the analysis has been that government-inspired private monopolies and the cost of regulation imposed on the private sector increase the price of goods and services in the private sector. However, at the same time prices of private goods and services go up, the relative prices of public goods and services go down, inducing political support for an expanded public sector. A secondary purpose of this paper has been to demonstrate that for the size maximizing bureaucracy which must incur cost in promulgating and enforcing private sector regulations, there is some optimum limit to the number of cartels that are formed and the amount of regulatory cost that is imposed on the private sector. The analysis may explain much of the adjustment in the extent of current regulation: that is, the bureaucracy, through the adjustment and re-adjustments of the scope and cost of regulation, is seeking out its maximum size.