Unbinding Regulations

Abstract

The steady growth in imposed regulations, often defended on the basis of the precautionary principle (which forbids innovations until there is proof that they will cause no harm), increases the risks and costs of innovation for the entrepreneur. Many important innovations of the last century would not have occurred if the precautionary principle had been in operation. Organic regulation of the marketplace (including tort actions and private ratings firms) can counter injuries due to irresponsible firm behavior, without stifling innovation. OSHA regulations did not reduce workplace deaths; financial regulations did not stop the Crisis of 2008, and may have made it worse. Occupational licensing regulations protect incumbents, and reduce opportunity for the least well-off. By slowing new life-saving drugs, FDA regulations cause more deaths than they prevent. The Vodnoy paradox suggests that we favor regulations in areas where we are ignorant and oppose them in areas where we are knowledgeable.