Regulation is the promulgation, monitoring, and enforcement of rules. Regulation creates or constrains a right, creates or limits a duty, or allocates a responsibility. Regulation can take many forms: legal restrictions promulgated by a government authority, contractual obligations that bind many parties (e.g., "insurance regulations" that arise out of contracts between insurers and their insureds), self-regulation by an industry such as through a trade association, social regulation, co-regulation, third-party regulation, certification, accreditation, or market regulation. In its legal sense, regulation can and should be distinguished from primary legislation or judiciary law.
Governments use laws and regulations to point business behavior in what governments perceive to be beneficial directions. Government regulation attempts to produce outcomes which might not otherwise occur, prevent outcomes that might otherwise occur, or produce or prevent outcomes in different timescales than would otherwise occur. In this way, regulations can be seen as implementation artifacts of policy statements. Common examples of regulation include controls on market entries, prices, wages, development approvals, pollution effects, employment for certain people in certain industries, standards of production for certain goods, military forces, and services.
Regulations can be justified for a variety of reasons, including:
- Market failures - regulation due to inefficiency. Intervention due to a classical economics arguments about market failure. Market failures can present themselves due to events such as: risk of monopoly, inadequate information, and unseen externalities.
- Collective desires - regulation about collective desires or considered judgments on the part of a significant segment of society.
- Diverse experiences - regulation with a view of eliminating or enhancing opportunities for the formation of diverse preferences and beliefs.
- Social subordination - regulation aimed to increase or reduce social subordination of various social groups.
- Endogenous preferences - regulation aimed at affecting the development of certain preferences on an aggregate level.
- Irreversibility - regulation that deals with the problem of how certain types of conduct from current generations result in outcomes that future generations may not be able to recover from.
- Professional conduct - the regulation of members of professional bodies, either acting under statutory or contractual powers.
- Interest group transfers - regulation that results from efforts by self-interest groups to redistribute wealth in their favor, which may be disguised as one or more of the justifications above.
Beginning in the late 19th and 20th century, much of regulation in the United States was administered and enforced by regulatory agencies which produced their own administrative law and procedures under the authority of statutes. Legislators created these agencies to allow experts in the industry to focus their attention on the issue. At the federal level, one the earliest institutions was the Interstate Commerce Commission which had its roots in earlier state-based regulatory commissions and agencies. Later agencies include the Federal Trade Commission, Securities and Exchange Commission , Civil Aeronautics Board, and various other institutions. These institutions vary from industry to industry and at the federal and state level.
Regulatory Agencies
The Securities and Exchange Commission is an example of a government regulatory agency.