November 2006

Still Reforming Regulation

Roger Noll, emeritus professor of economics at Stanford University, delivered the 2006 AEI-Brookings Joint Center Distinguished Lecture on November 14 concerning regulatory reform and practices. He discussed the accomplishments of regulatory economists and their efforts to sketch a vision for the future, while observing the spread of current American reform efforts to other economies abroad.

Roger Noll
Stanford University

Regulatory reform is a slow process most of the time, and reformers should be patient. Economists, in particular, have contributed greatly to the improvement of regulatory policy not just in the United States but also throughout the world.

By the late 1970s, economists had persuasively demonstrated the inefficiencies of regulating key markets, such as transportation. This led to the deregulation of various industries in the United States, including airlines, trucking, and some financial services. Countries around the world took note of American efficiency gains in these areas and eventually followed suit, privatizing many state-owned enterprises.

Economists’ contribution to regulatory reform went beyond documenting the gains from deregulation of selected industries. They also helped with the development of new pricing methods, such as price caps, to balance equity and efficiency; the refinement and implementation of cost-benefit analysis; the design of Federal Communications Commission spectrum auctions, which solved the complicated problem of efficiently allocating spectrum; and the introduction of emissions trading markets, a more efficient means of pollution reduction.

Regulatory economists’ work, however, is far from complete, and their attention should be concentrated in two new areas: international trade and regulatory impact analysis. Regulatory economists have not yet scrutinized a litany of rules governing international trade. They should expand the domain of regulatory impact analysis. Currently, this analysis is mandated for executive rulemaking agencies, but other agencies still implement rules without a careful consideration of their economic impacts.

Joint Center research assistant David Burk prepared this summary.