Regulatory burden and business dynamics: a preliminary analysis

Abstract

Purpose

Stigler (1971) first presented a theory of regulation in which the regulator eventually serves the interests of the regulated rather than in the interest of the public good. In such an institutional environment, one should expect to observe outcomes associated with reduced competitive pressures on existing firms. The paper aims to discuss this issue.

Design/methodology/approach

In this paper, the authors use RegData, which quantifies regulatory restrictions by industry, to determine whether and to what degree regulation reduces establishment entry and the associated job creation and how regulation impacts existing establishment exit and job creation and destruction.

Findings

The results, while not definitive, are supportive of Stigler’s theory of regulatory capture.

Originality/value

This paper adds to the small but growing empirical literature examining the effects of cronyism more broadly. Prior studies of regulation have generally been either narrowly focused on a specific regulation or employ less precise measures of the extent of regulation. By employing RegData as a measure of regulatory restrictions by industry, this paper offers new insights on the impact of regulation on business dynamics.

Citation

Clark, J.R. and Nesbit, T. (2018), "Regulatory burden and business dynamics: a preliminary analysis", Journal of Entrepreneurship and Public Policy, Vol. 7 No. 3, pp. 279-289. https://doi.org/10.1108/JEPP-D-18-00027