Reflexive Adaptation of Business to Regulation and Regulation to Business

Regulatory change is driven by competitive struggle. Regulatees struggle with each other for customers and with regulators to lessen the burden of the rules being enforced. Regulators compete for regulatees and for the confidence of customers and the general public.
Competition among regulators is imperfect. Along with better rules, new entrants must offer reputational capital, financial strength, and recognized enforcement powers. These entry requirements have supported a secular expansion of government suppliers relative to private suppliers. Principal-agent conflicts inherent in representative democracy establish incentives for this expanding sector to produce regulatory services of poor quality. Finding ways to make top government regulators economically accountable for acts of misregulation is a critical problem.