Technology and the Evolution of the Regulatory State

Abstract

Modern states increasingly rely on two means of regulating markets: public regulation (by the government) and private self-regulation (by the firms themselves). This study assesses the evolution of the state toward co-regulation by examining, across countries, the incidence of a prominent type of self-regulation: the environmental protection standard ISO 14001. It focuses on technological capabilities as a precursor to the widespread adoption of ISO 14001. Just as technological progress helps to explain differences in economic growth, markets with greater technological attainment (specifically, general purpose technologies) arguably have greater firm-level adoption of self-regulation practices. According to panel data, ISO 14001 is more widespread in countries with greater technological capabilities, but there are diminishing returns to the impact of technology. As such, limited technological attainment remains a key factor that constrains economic growth and limits not only the capacity of the market to regulate itself but so, too, the evolution of the state toward a system of co-regulation.