The Efficiency-Growth Dilemma: An Analysis of Regulation’s Impact on Short and Long-Term Development

Please cite the paper as:
Fernando B. Meneguin and Tomás T. S. Bugarin, (2017), The Efficiency-Growth Dilemma: An Analysis of Regulation's Impact on Short and Long-Term Development, World Economics Association (WEA) Conferences, No. 1 2017, Public Law and Economics, 1st June to 30th June, 2017

Abstract

In the midst of an ongoing recovery of economies worldwide, a growing concern regarding competitiveness and efficient regulations has arisen. Countries have taken different paths in the hopes of procuring higher growth rates, be it through austerity or expansion of State expenditures. Nonetheless, a common concern pertains to installing appropriate incentives, via regulation, in order to expedite desired results. The term “regulation” is used in a broad sense, insofar as governmental initiatives, under different forms and issued from all three branches, directly impact the main objective of instilling economic growth. To this end –namely the analysis of regulations’ adequacy to reach their assumed goals–, a Law and Economics framework is of great utility. This paper seeks to investigate efficiency under an intertemporal perspective, rather than the traditional static angle. Our premise is that, amongst several functions of norms, is the potentialization of expected returns and impairment of undesired results. In this sense, although several studies involving immediate impacts on efficiency fomented by means of regulation, legislation, or jurisprudential interpretations already exist, a careful analysis considering the dynamic gain in efficiency remains lacking. In some cases norms generate initial reductions of social welfare, widely compensated by future gains. The contrary may also occur, when regulations apparently produce a momentaneous raise in social welfare, followed by long lasting losses. In the present text, using the framework provided by Law and Economics, particularly the Welfare Overtaking Theorem, the efficiency of legal provisions and judicial rulings is analyzed, in a short and long-term perspective. To this end, an initial outline of the referred theorem is exposed, highlighting important matters that can be better addressed through its teachings, such as the offset of initial inefficiencies due to sustainable growth and the correlation between (in)equality and economic development. In sequence, a brief review of important Law and Economics literature is disclosed in the interest of (a) exemplifying the complexities that surround this debate and (b) furthering the current stance of academic reflections. Mainly in pursuance of the latter, various Brazilian case studies are invoked, such as provisions in the bankruptcy act, an emblematic Supreme Court ruling, and welfare programs instituted by government. The conclusions show that in drafting regulations, laws, and rulings, previous considerations of present and future costs and benefits must be acknowledged, including impacts on society’s dynamic efficiency. The findings focus on the Brazilian context, but are undoubtedly replicable in numerous other countries.


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3 comment

  • Renny Reyes says:

    First, I would like to congratulate you on your research, particularly the analysis of various regulations at different points in time. I am interested in particular in your conclusion, where you state that regulations and public policies must consider an intertemporal framework, a statement with which I agree. However, in the particular cases that you analyzed, it was not clear to me if the lack of consideration for intertemporal effect was a conscious or involuntary decision. In case the future impact of the regulation cannot be foreseen at the moment of its enactment, could a ex post evaluation solve the intertemporal issue you refer to?

    • Fernando B. Meneguin says:

      Hi, Renny.
      Thank you for your comment!
      What we usually see is that there isn’t a good legislative impact assessment for new legislation and, because of this lack, sometimes we get bad regulation. When it happens, I agree with you that an ex post evaluation is the solution to correct problems.
      Best regards
      Fernando

  • Patrick Haughey says:

    Regulations need to be measured not just in cost to growth. Growth at all costs in an of itself is not an unquestioned good, contrary to economic belief. Clean water, air and land however is common good. This paper encourages less regulation, and that means more poison for profit. I wish economists would take a history class.

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