Deregulation continues to be a hot-button issues in the United States. While the national debates rage, however, regulation at the state level still flies below the public's radar screen, although it is critically important. Paul Teske provides the foundation necessary to assess competing claims about state-level economic regulation in a time of turbulent politics and uncertain economics. He has produced an indespensable resource, offering both depth and breadth. Regulation in the States provides original quantitative analyses of state-level regulation across all the states in ten important sectors such as telecommunications, electricity, and professional licensing. Each section uses the same template for research and discussion, enabling cross-comparison among industries. Teske finds that commonly held fears of regulatory capture by industry are overblown, as are worries about an inevitable "race to the bottom." Legislatures and agencies still tend to base their policy decisions on their own ideologies and analysis. Teske also examines important exceptions, however, such as the case of occupational regulation. State-level regulation is neither inherently evil nor universally wise. The truth is somewhere in between, often found among the details. Nobody would argue it is perfect, however, and Teske assesses a wide range of possible reforms.
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About the Author
Paul Teske, professor of public affairs at the University of Colorado's Graduate School of Public Affairs in Denver, is the author or coauthor of several books including Choosing Schools: Consumer Choice and the Quality of American Schools (with Mark Schneider and Melissa Marschall). Teske has written widely on political economy and regulatory questions.
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Regulation in the States
By Paul Teske
Brookings Institution Press
Copyright © 2003
Brookings Institution Press
All right reserved.
Regulation of major industries at the state level has historically been
important in the United States since the emergence of the industrial
economy after the Civil War. In many industries state governments regulated
before any such federal activity, and in a few major industries, such
as insurance, states have retained sole regulatory authority. In the twentieth
century, however, the general growth in federal government activity
included increased regulation, giving the appearance that state regulation
was being relegated to a smaller role. Further, the federal push toward
deregulation in the last quarter of the twentieth century-including some
explicit preemption of state regulatory authority-combined with a growing
globalization wherein economic activity has increasingly been subjected
to supranational regulatory authority, seemed to spell the eventual
end of subnational regulation.
Surprisingly, however, since 1980 the state regulatory role has emerged
as more robust than expected, solidifying and even expanding as part of a
trend toward devolution ofpowers, in which some states have chosen not
to phase out their regulatory powers but instead to counter federal deregulation
and "de-enforcement" with their own "reenforcement" policies.
And yet very little is known about how states actually regulate, especially
the similarities and differences across industries, and what effect
different state regulatory institutions have on policy outputs and industry
Critics of state regulation have long been concerned about the "capture"
of political decisionmaking by concentrated and powerful industries
and about a collective "race to the bottom" of regulatory laxity based
on the need for states to attract and retain firms for economic development,
jobs, and tax purposes. On the other hand, proponents believe that
states can be more efficient, flexible, and responsive regulators than can
This book provides a foundation of research upon which to assess these
competing claims. Its core is several new and sophisticated quantitative
analyses of specific areas of state regulation. Prefacing these, however, are
the three introductory chapters that make up part 1, which provide a cogent
approach to the subject, an overview of the theoretical issues involved,
and an explanation of the methodology and measurement techniques
employed in the case studies. (The studies themselves are presented
in a reader-friendly form, with the more technical details limited to chapter
3 and to endnotes for readers who wish to peruse that material more
Each industry chapter is placed within a broader section related to the
market failure that motivates its regulation in the first place. Each section
employs a similar "template," including a brief discussion of the reason
for regulation of these types of industries; a brief history of state regulation
of these types of industries, including some others not tested in the
quantitative studies; an explanation of the critical actors and factors within
each industry; a multiple regression-type quantitative analysis of the economic,
political, and bureaucratic factors that influence state regulatory
policy and outcomes; and conclusions about state regulation of that industry
and market failure type.
The case studies begin with the regulation of telecommunications (chapter
4) and electricity (chapter 5) in part 2. These industries have long been
perceived as natural monopolies that required economic regulation of
prices, entry, and service quality. In recent years, first in telecommunications,
then in electricity, technological advances challenged the assumptions
about natural monopolies and allowed for competition in at least
some segments of these industries. The same issues were also relevant in
past years for transportation regulation, but that area has largely been
deregulated and federal politicians preempted any ongoing state role.
Part 3 addresses state regulation that is justified by asymmetric information.
Here states play a role in monitoring business activity to protect
consumers who hold limited information. This section presents studies of
insurance solvency (chapter 6), savings and loan solvency (chapter 7), and
hospital certificate-of-need regulation (chapter 8). While states regulate
insurance with no federal regulation, regulation of the other industries
has included a mix of federal and state involvement.
Part 4 examines occupational regulation, which theoretically is aimed
at asymmetric information problems but in practice often has elements of
economic regulation of entry. States regulate occupations with no federal
role. The quantitative studies are of state regulation of lawyers (chapter
9) and medical doctors (chapter 10), two of the most prestigious and well-paid
Part 5 deals with environmental regulation, which is probably the most
important form of regulation practiced in the United States today, particularly
in terms of the costs that governments impose on private actors.
Here states implement federal regulations, with varying degrees of discretion,
depending on the type of environmental regulation. Chapter 11 is a
study of states gaining EPA approval of their clean air implementation
permitting plans, and chapter 12 investigates state groundwater protection
regulation, an area in which states have considerable discretion about
whether and how to regulate.
Finally, in part 6, all the evidence is pulled together in chapter 13 to
draw conclusions about state regulatory policy. Based on these quantitative
industry studies across the fifty states, it appears that capture is much
less of a concern than many have feared. Instead, a range of interest groups
participates in most state regulatory processes, leaving political and bureaucratic
actors space to make some important decisions based on their
own ideologies and analyses of problems. Some industry groups in some
states do capture their regulators, but this is not the overwhelming pattern.
Specifically, state legislatures and regulatory agencies are generally
the most important influences over regulatory policy, operating in directions
that correspond to theoretical expectations, such as Democratic legislatures
being more pro-regulation or pro-consumer. While interest groups
are important in regulatory battles in most industries, they only demonstrate
strong capture over occupational regulation; all other areas seem
fairly highly contested in a typical state.
Discussion is not, however, limited only to the results of these quantitative
studies, all of which have some measurement or methodological
limitations. As I read and studied the political and economic literature on
state regulation, I developed ideas, opinions, and impressions that I also
use to provide some new insights into other, related issues about state
regulation. Throughout the book, and particularly in the conclusions, I
assess: How does the regulatory relationship between federal and state
governments work, and how is it changing? What influences state regulatory
policy choices? What reforms have states tried and how are they
working? What is the future role for state regulation in an increasingly
By understanding better how different institutions shape regulatory
policy, we can evaluate executive, legislative, bureaucratic, and judicial
reforms. Since most of the studies herein demonstrate legislative influence
over policy, chapter 14 analyzes reforms related to legislative professionalism
and oversight, including oversight before policy implementation, as
practiced in some states with state administrative procedures acts and similar
systems, and oversight during policy implementation, such as hearings
and legislative reviews. Also examined is state executive oversight of regulation,
as practiced by the New York Governor's Office of Regulatory
Reform and in some other large states, agencies that are modeled partly
after the regulatory arm of the federal Office of Management and Budget.
The role of bureaucratic accountability structures is likewise relevant, in
terms of elected or appointed commissioners, and the role of bureaucratic
resources and professionalism. Given the growing judicialization of regulation,
chapter 15 analyzes the role of state courts in reviewing regulation
and the growing role of state attorneys general in taking a legalistic approach
to regulating certain activities and industries.
Finally, in chapter 16 I provide insight into the ultimate-and probably
ultimately unanswerable-question: Is state regulation good or bad? The
highly subjective answer is almost surely that regulation of some industries
in some states is performed very well, while in other industries or in
other states, it is done quite poorly and could be greatly improved or should
be eliminated entirely. Overall, since state regulation is captured less often
by powerful interests than many casual observers believe, state regulators
do a pretty good job when they have the resources to develop, implement,
and enforce appropriate policies. Still, the processes of state regulation
can be improved by attention to which approaches seem to work best.
Excerpted from Regulation in the States
by Paul Teske
Copyright © 2003
by Brookings Institution Press .
Excerpted by permission.
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