Larger Polities Are More Regulated
17 Pages Posted: 25 Sep 2020
Date Written: September 2020
Mulligan and Shleifer (2005) put forward a theory of regulation in which a fixed cost of regulating leads larger polities to regulate more. This follows a prediction made in Demsetz (1967) that because institutions have fixed costs associated with their establishment, introducing an institution only becomes efficient once the scale of the activity it supports is significant enough to cover the costs of creating it. Beyond these studies and a few follow-ups, very few have advanced scholars’ understanding of the relationship between regulation and population. This working paper is intended to help fill this gap in the literature. We aim to test whether this population-regulation connection holds using more recent, more refined, and more comprehensive measures of regulation.
Using a variety of novel data sources from the RegData project, we show that population levels and the amount of regulation are highly correlated across countries and time, and that more populated US states, Australian states, and Canadian provinces tend to be more heavily regulated than less-populated states and provinces. A doubling of population size is associated with a 22 to 33 percent increase in regulation. This provides support for the theory that the fixed costs associated with regulating partly determine where and when regulations occur.
Keywords: regulation, population, RegData, Australia, Canada
JEL Classification: K2, L51, N40, R23
Suggested Citation: Suggested Citation