Regulation for Economic Efficiency

Some commercial regulations are necessary for the market for goods and services to work properly: to define the obligations on buyers and suppliers, and to specify penalties for non-compliance, so that people can buy with confidence:

  • Property rights have to be protected or people will be reluctant to invest and economic growth will be affected (3.2.1). Too much protection for intellectual property rights, though, can restrict innovation.  Joseph E. Stiglitz, in Making Globalisation Work, chapter 4, describes how innovation can be stifled by a “patent thicket” that makes it too costly and difficult to create new products.
  • Some regulation is necessary to ensure fair competition – for example to break up or regulate monopolies. Failure to do so results in less money being available in the rest of the economy, and hence less opportunity for wealth creation.
  • Government has to regulate private companies which provide public services (, particularly those which are natural monopolies (, because public services are seen as a political responsibility (6.1.2) and the public is entitled to receive value for money.
  • Regulations on trade policy, including standards and tariffs, are imposed under trading agreements – as discussed later in this chapter (

These regulations together maintain the balance of power between buyers and suppliers so that the operation of supply and demand can optimise the performance of the economy, as examined below (3.3.2).



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