Regulation in the Digital Age

1
Regulation in the Digital Age

• July 2001

2
Approaches to Regulation

• What is regulation?
• Historical survey
• Rationales for regulation
• Forms of regulation
• Regulation vs Governance
• Regulation in the Digital Age

3
What is Regulation?

• The supervision and control of the economic
  activities of private enterprise by government
  in the interest of economic efficiency,
  fairness, health and safety.
• Penguin Dictionary of Economics

4
Three Meanings of Regulation

• Promulgation of an authoritative set of rules
  accompanied by mechanism (govt agency) for
  monitoring and compliance.
• All the efforts of state agencies to steer the
  economy.
• All mechanisms of social control, incl.
  non-government mechanisms.
• Baldwin, Scott Hood (pp 7-8).

5
Economic vs social regn.

• The essence of regulation is the explicit
  replacement of competition with governmental
  orders to ensure good performance.
• Alfred Kahn, The Economics of Regulation

6
Economic vs social regn

• Regulatory intervention by government is often
  employed to
• deal with market failure and
• attain social goals, incl. worker safety,
  environmental goals, consumer protection.
• ORR, A Guide to Regulation.

7
History of Regulation

• 1877-1933 classic model of economic regn.
• Munn v Illinois 94 US 113 (1877).
• Interstate Commerce Act (1887).
• 1933-1938 New Deal.
• 1940s-1950s administrative procedures.
• 1960s-1970s welfare rights environmental regn.
• 1970s-1980s deregulation.
• 1990s- regulation in the digital age?

8
Classic Model of Regn

• Regulatory agency independent of govt,
  responsible for monitoring public utilities
• Restrictions on entry (licensing)
• Price controls
• Prescription of quality and conditions of service.

9
Criticisms of Regulation

• Capture theorists
• Interest group theorists
• Agency theorists
• Institutional theorists or systems theorists.

10
Transformation of Regulation

• Elimination of regulatory barriers to entry
• Multiple competing service providers
• Focus on promoting competition, not protecting
  consumers
• Concern with regulating access to bottleneck
  facilities
• Unbundling uniform public service into many
  services.

11
Reasons for Transformation

• Technological change
• Chain Reactions
• Interest group politics
• Perceptions of regulatory failure.

12
Scepticism of Regulation

• Less apprehensive about natural monopoly
• Milton Friedman, Capitalism and Freedom (1962).
• Does regulation work?
• Averch Johnson, The Behaviour of the Firm
  under Regulatory Constraint (1962).
• Theory of contestability
• Baumol, Panzar Willig, Contestable Markets
  the Theory of Industry Structure (1982).

13
Rationales for Regulation

• Natural monopoly
• Externalities
• Inadequate information
• Public goods
• Moral hazard
• Social regulation.
• Breyer (p 49).

14
Forms of Regulation

• Self-regulation
• Quasi-regulation
• Co-regulation
• Explicit government regulation (black letter)
• Government ownership.

15
Governance

• Minimal state
• Corporate governance
• New public management
• managerialism/new institutional economics
• Good governance
• Socio-cybernetic system
• Self-organising networks.
• Rhodes, Understanding Governance (1997).

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What is Governance?

• Broader than government.
• Blurred boundaries between public, private
  voluntary sectors.
• Interdependence between organisations.
• Autonomy from state (self-organising networks)
• Changing role of the state (steering not
  rowing).

17
Regulation in the Digital Age

• Can the Internet be regulated?
• Should the Internet be regulated?
• How should the Internet be regulated?
• Who should regulate (govern) the Internet?