In Search of a Perfect Regulatory System

Abstract

Every contemporary economics textbook contains a chapter analyzing various forms of market imperfections and methods of addressing them by the government. Most textbooks also analyze cases where the government cannot control its own actions and fails in regulation. Such failures are believed to be much more harmful to economic development than the market imperfections that they seek to address. In such a situation, two solutions are possible: for the government to refrain from any regulatory activities based in the belief that the market has a built-in, efficient, self-regulatory mechanism or to take good care of the quality of regulation, limiting the incidence of failures to a minimum.