Governance, Economic Restructuring, and International Competitiveness

Abstract

The (de-)regulation debate of the 1980s only marginally touched upon two central theoretical, as well as practical, aspects of the problem: the functions and the institutions of regulation. As a rule, economists consider that there is a function for regulation only in the case of market failure, since their ideal is the perfectly competitive market. One can distinguish three types of market failure. In substantial terms, market failure arises when the market process does not lead to an efficient allocation. Second, there can be market failure in social terms, when efficient allocation implies an unacceptably unjust income distribution. This social aspect is devoted distinctly less space in the regulation debate. Third, there can be market failure in temporal terms. Solutions that are efficient in the short run may be suboptimal in the long run due to shortsighted planning horizons. Regulation could provide the necessary preconditions for long-term planning and efficiency. Up to now, this function of regulation has been

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