The Rise of the Regulatory State

Abstract

The Progressive Era of the early twentieth-century U.S. saw significant growth of government regulation of business. We model the choice of law enforcement strategy between private litigation over accidents, regulation of precautions, a combination of the two, and doing nothing. Any of these strategies can be subverted by private parties, at a cost. Private litigation may be more vulnerable to subversion than regulation, especially as the scale of enterprise grows. The rise of regulation is seen as an efficient response to subversion of justice. The model makes sense of the progressive reform agenda. It may also help explain what institutions of law and order are appropriate in what circumstances-a crucial issue for transition economies and emerging markets.