Note on Regulatory Choices

By: Indra A. Reinbergs and Alexander Dyck

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Synopsis: For many firms, government interaction is expansive, influencing the conduct of firms and industry structure. The visible hand of government, in the form of a regulatory scheme, plays a role in firm affairs along with the invisible hand of market forces. Deregulation and regulatory reform have changed but not eliminated government intervention. In such regulated environments, successful business strategy requires an understanding of the goals of regulatory involvement and the specifics of regulatory institutions. This note identifies some of the functions provided by regulatory institutions as well as the more important dimensions that differentiate specific institutional approaches to regulation. Understanding the common functions is important for managers interested in which approaches provide scope for long-term private sector involvement. Understanding the institutional differences is essential to devising specific strategies for business success. This note examines different regulatory decisions: the objectives behind regulatory intervention; the economic and legal basis of regulation; and various ways to implement a regulatory system, involving design choices in regulatory independence, the decision-making process, and industry scope.