What Is Regulation?

ABSTRACT: People hold strong views about regulation, but do they know what “regulation” means? National Federation of Independent Business (“NFIB”) is a landmark in regulation jurisprudence, yet the NFIB Court was divided over the meaning of the term “to regulate.” During the past century, substantial resources have been invested in the politics and scholarship of regulation. Nonetheless, the term “regulation” has escaped a clear definition. This short essay explores the meaning of the term. Regulation is a byproduct of our imperfect reality and human limitations. We live in a complex world of finite resources, in which the pursuit of self-interest often fails the individual and causes harm to others. Such imperfections and limitations are the primary motivation for regulation—to promote economic efficiency, environmental sustainability, morality, and the general welfare of the public. The same imperfections and limitations, however, also guarantee the imperfect nature of regulation. Our human flaws allow, for example, the promulgation of excessive and redundant regulations, and enable the adoption of regulations that serve interest groups. Society’s challenge, therefore, is to acknowledge that imperfections and limitations impair decisionmaking, communication, and trade, and to utilize legal institutions to address them. In other words, we should accept the fact that regulation is here to stay, and work to maximize its benefits and minimize its costs.