Wednesday, April 13, 2016

Regulating Away Competition

"The status quo has changed, son."
--Patrick Gates (National Treasure)

A consistent theme running through the regulation thread of these pages is that government-imposed regulation on industry squelches competition and innovation. Regulation raises barriers to entry, which discourages entrepreneurial action and protect the franchises of incumbent firms prone to maintain the status quo.

Just ran across more empirical evidence that supports the theory. Econ profs find that:

-->A 10% increase in intensity of regulation led to 0.5% decrease in firm births. The effect was more pronounced among small firms, which, of course, is where most entrepreneurial entry comes from.

-->No significant effect of increased regulation on firm deaths. In fact, there is some evidence to suggest that firm deaths decrease with more intense regulation.

-->A 10% increase in regulation intensity was associated with a 0.9% decrease in hiring among firms of all sizes.

The greater the regulation imposed by government, the lower the competition and productivity improvement.

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