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micromanagement results in businesses being subject to an enormous amount of highly
detailed government regulation.
Example 4: The Federal Register records all of the regulations that the federal government
imposes on businesses. The 2013 Federal Register contains almost 80,000 pages.
Costs of Regulations
Regulations may benefit the general public (e.g. cleaner air and water,) or the regulated industry
(e.g. protection from competition) or the regulatory agency (e.g. a bigger agency budget). But
regulations also impose costs on the economy:
1. Costs of the regulatory agency. Environmental regulations require an Environmental
Protection Agency to enforce them. The EPA has about 16,500 employees. The salaries of
those employees, as well as other costs to operate the agency, are paid by the taxpayers. The
table below shows the annual budgets for some of the larger federal regulatory agencies for
fiscal year 2014.
RegulatoryAgency
Environmental Protection Agency
Securities and Exchange Commission
Occupational Safety and Health Administration
Federal Motor Carrier Safety Administration
Federal Communications Commission
Consumer Financial Protection Bureau
Mine Safety and Health Administration
Equal Employment Opportunity Commission
Federal Energy Regulatory Commission
Federal Trade Commission
Commodity Futures Trading Commission
National Labor Relations Board
Federal Housing Finance Agency
Antitrust Division of the Department of Justice
Consumer Product Safety Commission
Annual Expenditures
$5,338 million
1,696 million
578 million
562 million
517 million
508 million
388 million
372 million
332 million
311 million
303 million
285 million
240 million
159 million
119 million
The costs of regulatory agencies have been increasing. According to research by Susan
Dudley and Melinda Warren, federal regulatory agency expenditures increased by 163 percent
(in constant dollars) between 1990 and 2014. Staffing levels for federal regulatory agencies
increased by 86 percent over this time period.
2. Costs to the regulated firms of complying with the regulations. A company may incur
costs to install pollution abatement equipment required by the EPA as well as costs to
complete paperwork required by the EPA. The company may also incur costs to comply with
regulations created by the Occupational Safety and Health Administration, the National Labor
Relations Board, the Equal Employment Opportunity Commission, the Federal Trade
Commission, etc.
The cost of complying with the various regulations adds to the company’s cost of production,
and is ultimately paid by the consumers of the company’s products.
Example 5: Research by Nicole V. Crain and W. Mark Crain estimated the costs of complying
with federal regulations at $1.75 trillion in 2008. These costs fell disproportionately on small
businesses (businesses with fewer than 20 employees).
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3. Inefficiency costs if the regulations reduce competition. Regulation often reduces
competition in the regulated industry. Competition enhances economic efficiency (see Chapter
21). A lack of competition leads to higher prices for consumers.
29 - 5 Government Regulation of Business