Freedom or efficiency? : an experimental approach to regulation

Abstract

Whether and how to regulate externalities and public goods is one of the most central issues of political economy. It is also one of the areas with the largest discord between economic theory and political reality. This paper examines the issue from a new angle, using an economic experiment to elicit revealed norms about regulation. It shows that regulatory preferences are highly sensitive to potential efficiency gains. It also reveals that norms about regulation are highly heterogeneous, and that a large minority are apparently unwilling to trade reductions in autonomy for any increase in efficiency.