ECON 4333 Page Back to lesson 2 ECON 4333 Links

State and Local versus Federal Regulation 

The Issue: Is there any inherent advantage to federal regulation as compared to local or state regulation (or vice-versa)?

Example of local regulation

bulletZoning ordinances
bulletRestrictions on the use of fireworks
bulletSale of mixed drinks at restaurants
bulletRent controls
bulletSmoking in public places

State Regulations

bulletRegulation of state-chartered financial institutions
bulletRegulation of the insurance industry
bulletLegal drinking ages
bulletSpeed limits
bulletRegulation of the gaming industry

The New Federalism

bullet The term new federalism is meant to distinguish it from the old federalism of the New Deal, an era  marked  by the increasing concentration of power and regulatory authority at the federal level. 
bulletThe new federalism signifies an increased commitment to power sharing among governmental units--that is, the devolution or "passing back"  of  power and  regulatory responsibilities to the states. Federalism is viewed by some as a code word for "states rights." 

Federalism was a concept idea favored by President Reagan and his domestic policy team. Why federalism?
bulletFederal laws and regulations often imposed costs on states--so called "un-funded mandates."
bulletStates can regulated commerce in more cost-efficient fashion.
bulletRegulation of business should not necessarily be uniform across jurisdictions--that is, preferences for clean air, safe cars, gambling, etc. differ across states and therefore the character of government regulation should be state or region-specific.
bulletExperimental regulatory design is less costly if unsuccessful at the state and local level.

Advantages of National or Federal Regulations 


bulletIt is more efficient to have a federal agency (the FDA) doing drug testing than to have 50 state agencies.
bulletRegulatory compliance costs would tend to be less if firms face the same regulations in all 50 states as opposed to a situation where they are have to comply with one set of product safety standards in Alabama and another set in Oregon. What if Detroit had to cope with different emission standards in every state in which they sell cars?
ECON 4333 Page Back to lesson 2 ECON 4333 Links