The first decade of the twenty-first century concluded, and the second decade began, with the United States having experienced one of the worst economic upheavals in its history as well as one of the worst environmental disasters in its history. These calamities, combined with a series of other major industrial accidents as well as a deep recession and sluggish economic recovery, have cast grave doubts over the adequacy of the nation’s regulatory system. In the wake of each calamity, politicians and members of the public have attributed much of the blame to a general breakdown in the U.S. regulatory system.¹...

Catastrophic risks are hazards that inflict substantial loss of life on large populations or cause tremendous property damage. Fortunately, catastrophic risks tend to involve rare events. Unfortunately, their distributions tend to be fat-tailed, implying that when catastrophes do occur there may be extreme outliers. These two factors imply that the occurrence and consequences of catastrophes will be difficult to predict. Eliminating catastrophes is not possible and in many cases should not be attempted. Moreover, even where some sources of catastrophe could be eliminated, by means such as banning deepwater drilling, it will often be undesirable to do so. The objective...

On April 20, 2010, eleven workers were killed in an explosion on the Deepwater Horizon rig in the process of drilling the Macondo well off the Gulf of Mexico. The blowout resulted in between four and five million barrels of oil leaking into the Gulf of Mexico. Early estimates of the damages from the oil spill are in the range of $20 billion with an additional $17 billion in fines (Economist 2010). There are many entities at blame for the significant human and environmental disaster in the Gulf, and regulators have not escaped unscathed. Regulators at the Minerals Management Service...

The U.S. housing finance system presents a conundrum for the scholar of regulation, as it simply cannot be described in traditional regulatory vocabulary. Regulatory cosmology has long had but a limited number of elements: direct command-and-control legislation (including substantive term and feature regulation, disclosure, and licensing), Pigouvian taxation and subsidies, tradable Coasean quantity permits, and regulation via litigation.

None of these traditional regulatory approaches, however, are adequate to describe the regulation of housing finance in the United States. Instead, to understand U.S. housing finance regulation, it is necessary to conceive of a distinct regulatory approach—that of the “public option”...

How should one regulate in the midst of a financial crisis? This is a fundamental question for financial regulation, but it is not readily answerable as the issues implicated are truly complex, if not intractable. Yet foundational financial legislation tends to be enacted in a crisis setting (Romano 2005:1591–94), and over the past decade, when confronted with this question, the U.S. Congress has answered it reflexively by enacting legislation that massively increases the scope and scale of the regulation of business firms, especially financial institutions and instruments, in a manner seemingly oblivious to the cost and consequences of its...

By many accounts, partisan polarization in America has rarely been more acute than during President Barack Obama’s first term in office. Nowhere have such divisions been starker than with respect to the proper role of the government in regulating the nation’s economy and society. The debate over the proper scope and power of the federal government stretches back to the founding of the republic itself. During the Great Depression, Franklin Roosevelt’s New Deal—an unprecedented expansion of the federal government’s role in regulating the U.S. economy—was as intensely unpopular among Republicans, and popular among Democrats, as President Obama’s healthcare...

The political problems surrounding regulation that have inspired this book reflect a battle over the amount of regulation. Does the United States have too much, so that regulation stifles beneficial enterprises? Or does it have too little, so that the lack of regulation permits too many disasters? We shall not address this question directly in this chapter except to point out that, other things being equal, both sides could be correct. Excessive regulation imposes costs (on someone) that exceed its benefits, and insufficient regulation allows harm that is more costly than the cost of preventing it. Each social and economic...

Is the U.S. regulatory system broken? The events of recent years would seem to provide depressing evidence that it is. Recent accounts detail a financial system out of control, a massive environmental disaster in the Gulf of Mexico, and a Salmonella outbreak in the nation’s food supply. These prominent cases suggest cause for concern, but they are also a call for new scholarly investigation and research. Do these accounts represent a “new normal” for the U.S. regulatory system? Or are they better understood as prominent outliers within an otherwise more competent regulatory process? Stated differently, every administrative law or regulatory...

The influence of the Food and Drug Administration (FDA) reaches beyond its formal authority and into global pharmaceutical research, development, and marketing (Carpenter 2010:1–2). Despite this image of domestic and international prominence, a series of food and drug recalls over the past decade have exposed weaknesses in the FDA’s regulatory processes and in the public’s confidence in its work. Although public opinion about the FDA varies, one widely reported 2009 poll suggests that 52 percent of respondents gave the FDA negative ratings for “ensuring the safety of imported prescription drugs” (Harris 2009:1). Respondents were evenly split—47 percent positive...

The United States system of securities regulation has come under sustained criticism in recent years in the wake of both the unraveling of Bernie Madoff’s multibillion-dollar Ponzi scheme as well as the national economic crisis triggered by mortgage securitization and the collapse in the housing market. This chapter looks at one aspect of the U.S. system of securities regulation: private class action enforcement of the antifraud provisions of the federal securities laws. To the casual observer, the issue of private fraud enforcement is settled ground occupied by litigation specialists, the lawyers and judges who attend to a long-established cause of...

In the United States, regulatory agencies and private litigation operate parallel systems of regulation in many substantive areas. At times, these systems can generate mutually inconsistent outcomes, as complying with a regulation sometimes leads to liability exposure. Even when these systems do not directly conflict, a number of critics suggest that these overlapping mechanisms lead to too much regulation. Because of these concerns, some scholars and reformers argue that courts should be more willing to hold that regulations preempt litigation or to allow the use of a regulatory compliance defense, which is currently unavailable in most U.S. jurisdictions but is...

The U.S. Food and Drug Administration (FDA) may seem a strange candidate for inclusion in a book on regulatory failure. For more than half a century, the FDA has been a high-status icon of the federal administrative state. Few agencies have been as successful at achieving their stated regulatory goals, and few have enjoyed the reputation for technocratic expertise that the FDA has long held among the press and the public (Carpenter 2010). The regulatory regime overseen by the FDA has produced sizeable public health gains over the past sixty years by virtue of ensuring safer food and therapeutic products...