Limitations of Market Regulation

Although regulation offers the possibility of addressing market failure and inefficiencies that would not resolve by themselves in an unregulated free market economy, regulation is not easy or cost free.

Regulation requires expertise and incurs expenses. Regulation incurs a social transaction cost for market exchanges that is borne by citizens and the affected parties. In some instances, the cost of the regulation may be higher than the net efficiency gains it creates. Just as there are diminishing returns for producers and consumers, there are diminishing returns to increased regulation, and at some point the regulation becomes too costly.

Regulators are agents who become part of market transactions representing ...

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