REGULATORY COUNTERTREND
COMITÉ CIENTÍFICO DE LA EDITORIAL TIRANT HUMANIDADES Manuel Asensi Pérez
Catedrático de Teoría de la Literatura y de la Literatura Comparada Universitat de València
Ramón Cotarelo
Catedrático de Ciencia Política y de la Administración de la Facultad de Ciencias Políticas y Sociología de la Universidad Nacional de Educación a Distancia
M.ª Teresa Echenique Elizondo Catedrática de Lengua Española Universitat de València
Juan Manuel Fernández Soria
Catedrático de Teoría e Historia de la Educación Universitat de València
Pablo Oñate Rubalcaba
Catedrático de Ciencia Política y de la Administración Universitat de València
Joan Romero
Catedrático de Geografía Humana Universitat de València
Juan José Tamayo
Director de la Cátedra de Teología y Ciencias de las Religiones Universidad Carlos III de Madrid
Procedimiento de selección de originales, ver página web: www.tirant.net/index.php/editorial/procedimiento-de-seleccion-de-originales
REGULATORY COUNTERTREND ÓSCAR SUMAR ALBUJAR RUBÉN MÉNDEZ REÁTEGUI
© 2022 Publications Centre of the Pontificia Universidad Catolica del Ecuador Quito, Ecuador www.edipuce.edu.ec Editorial Supervision and double-blind academic peer evaluation by Departamento de Derecho Económico, Universidad Externado de Colombia.
tirant humanidades Bogotá D.C., 2022
Foreword: Michael D. Gibert, Vice Dean, School of Law, University of Virginia. Acknowledgments: Dr. Maria Alexandra Ortiz Cabrera, Departamento de Derecho Economico, Universidad Externado de Colombia. Prologue: Professsor Rodrigo Barcia Lehmann, Ph.D. Decano, Facultad de Derecho at the Universidad Autonoma de Chile. Title: Regulatory Countertrend This book is the result of research activities carried out by the authors at Pontificia Universidad Catolica del Ecuador, Universidad Científica del Sur, Universidad Autonoma de Chile, Universidad Externado de Colombia, Colegio de America (Universidad Andina Simon Bolivar, Sede Ecuador) and Universidad de Salamanca (España). Proofreader: Laura Alejandra Guerrero Calderón Design and Layout: Rachel Romero Medina ISBN PUCE: 978-99-78775-50-9 All rights reserved. Law protects this work’s content. Spain, 2022 Copyright ® 2022 Todos los derechos reservados. Ni la totalidad ni parte de este libro puede reproducirse o transmitirse por ningún procedimiento electrónico o mecánico, incluyendo fotocopia, grabación magnética, o cualquier almacenamiento de información y sistema de recuperación sin permiso escrito del autor y del editor. En caso de erratas y actualizaciones, la Editorial Tirant Humanidades publicará la pertinente corrección en la página web www.tirant.com/co/ © Óscar Sumar Albujar Rubén Méndez Reátegui ©
TIRANT HUMANIDADES EDITA: TIRANT LO BLANCH Calle 11 # 2-16 (Bogotá D.C.) Telf.: 4660171 Email:tlb@tirant.com www.tirant.com Librería virtual: www.tirant.com/co/ ISBN: 978-84-19226-84-6 MAQUETA: Innovatext Si tiene alguna queja o sugerencia, envíenos un mail a: atencioncliente@tirant.com. En caso de no ser atendida su sugerencia, por favor, lea en www.tirant.net/index.php/empresa/politicas-de-empresa nuestro Procedimiento de quejas. Responsabilidad Social Corporativa: http://www.tirant.net/Docs/RSCTirant.pdf
This book was written as a theoretical and academic exercise. It can either illustrate and inform other legal-economic decision-making processes and suggestions to effectively reform the institutional framework in the Latin American countries seeking “more equal,” “fair,” and “open societies.” Therefore, its authors and supporting institutions do not sign up or follow any ideological bias or partisan approach. The authors welcome further comments and ideas from readers of all areas, thoughts, genres, ages, academic and professional expertise.
To our families To Pontificia Universidad Católica del Ecuador (PUCE); Ecuador in its 75th Anniversary To Universidad Científica del Sur (UCSUR); Peru To Universidad Autonoma de Chile (UA); Chile To Universidad Tecnologica del Peru (UTP); Peru To Universidad Externado de Colombia: Colombia To Universidad de Salamanca (USAL); Spain To the PUCE’s Faculty of Jurisprudence’s students, academic and administrative team celebrating a remarkable year of “diamond jubilee.” To Colegio de América sede Latinoamericana, Universidad Andina Simón Bolivar; Ecuador REGULATORY COUNTERTREND Óscar Sumar Albujar Rubén Méndez Reátegui
FOREWORD......................................................................................................... ACKNOWLEDGEMENTS................................................................................. PROLOGUE.......................................................................................................... INTRODUCTION...............................................................................................
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Chapter I ANALYSIS AND EXPLANATION OF THE REGULATIONS Business and Regulation: Educating Citizens on the Economy ..................... The TV Court: Media and Criminal Policy....................................................... Libertarian Lawyers? Law & Economics ........................................................... The Economic Analysis is more Theoretical than Practical............................. The Economic Analysis Focuses on Private Law rather than Public Law..... Where is the Law & Economics Going in Latin America?.............................. Effect of Regulation on Small Businesses........................................................... Irrationality, Social Norms, and Regulation...................................................... Plastic Ban, Liberalism, and Populism............................................................... What, then, Makes a Reasonable Regulation of Plastic?.................................. Regulation, Districts, and Collective Action Effects......................................... An Affectation of Individual Freedom Exists.................................................... Prohibition as a Failure of Regulation................................................................ Regulation and Alternatives................................................................................. Prohibition and Countereffect............................................................................. Why and for What do We Use Plastic Bags?...................................................... What Harm does the Use of Plastic Bags Produce?.......................................... What Would be the Costs and Effects of a Ban?...............................................
31 33 35 36 37 37 37 39 41 42 43 43 45 46 48 48 48 50
Chapter II REGULATORY QUALITY Analysing Regulation............................................................................................ What Can We Do about This?............................................................................. Individuals’ Decision Making.............................................................................. What, then, of the Expost Analysis?................................................................... Costly Cost Benefit Analysis................................................................................ What to Do?...........................................................................................................
53 53 54 55 55 56
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Contents
Legislative Power Performance ........................................................................... Congress as a Product........................................................................................... Buy “Wholesale”?.................................................................................................. Buying a “Wholesale”?.......................................................................................... Disinterested Consumers..................................................................................... Performance of the Members of Congress......................................................... How to Regulate?................................................................................................... Beyond the Cost-benefit Analysis of Legal and Regulatory Standards (CBA). Is Implementing Regulatory Impact Assessment the Solution?...................... Cost-Benefit Analysis............................................................................................ Regulatory Quality and Administrative Simplification....................................
56 56 57 58 58 58 59 61 61 62 64
Chapter III PELZTMAN EFFECT The “Hidden Costs” of Legal Standards............................................................. Temporary Substitutes.......................................................................................... Spatial Substitutes.................................................................................................. Substitute Products: Drug Use as a Substitute for Alcohol.............................. The Unforeseen Costs of Regulation................................................................... What Does this Have to Do with Regulation?................................................... Fines that Increase Non-Compliance................................................................. Alcohol Restrictions that Raise the Level of Intoxication and Accidents...... Effect of Tobacco Warnings about the Urge to Smoke..................................... More About Regulations......................................................................................
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Chapter IV THE PRIVATE PENSIONS SYSTEM Economic Irrationality and Mandatory Contributions.................................... Homo Economicus and Mandatory Contributions........................................... Final Thoughts on Private Funds Regulation....................................................
75 77 80
Chapter V REGULATION OF EDUCATION More about Legal Standards ............................................................................... A Failed Policy?..................................................................................................... A Failed Policy II?................................................................................................. Industries and Consumers................................................................................... Law Can Not Change Reality............................................................................... Look Out for Our Interests?.................................................................................
83 85 87 89 90 91
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Contents
Chapter VI SOCIAL NORMS AND THE CAPACITY TO SELF-REGULATE Human Behaviour. How to Deal with Difficult Conversations?..................... Politically Correctness..........................................................................................
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Chapter VII TELECOMMUNICATIONS, PUBLIC TRANSPORTATION AND APPS Traffic Problems in a City..................................................................................... The Transport Reform Backwards...................................................................... The Blue Corridor................................................................................................. The case of Uber.................................................................................................... Regulating Private Transport “Apps”.................................................................. Are Regulatory Bodies Always Necessary?........................................................ The Limit of Reasonable Regulation................................................................... What Regulates the Sharing Economy?..............................................................
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Chapter VIII CONSUMER PROTECTION AND ADVERTISING The Problem of Parking Lots............................................................................... Regulation of Subjective Advertising.................................................................. The Mystery of Drug Prices................................................................................. About Advertising Restrictions........................................................................... Tobacco Prohibitions............................................................................................ Smoking Prohibition in Public Places................................................................ The Cost of Tobacco to the State......................................................................... The Social Cost of Bans........................................................................................ About Suitability.................................................................................................... Information and Populist Regulation................................................................. More about Regulatory Outcomes......................................................................
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Chapter IX POLITICAL PROCESS AND PUBLIC CHOICE Direct Democracy and Revocation .................................................................... The Judiciary as a “Market”.................................................................................. More about the Peruvian Constitutional Tribunal........................................... On Social Market Economy................................................................................. Thoughts on Municipal Elections.......................................................................
131 132 134 136 138
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Contents
Incentives to Vote ................................................................................................. The Economic Constitution................................................................................. Economic Model, Pragmatism and Opportunism............................................
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Chapter X ECONOMIC REGULATION AND HEALTH Health and Normativity on Protectionism........................................................ Redefining the Role of the State.......................................................................... Regulation Populism and Improvisation............................................................ Food and Regulatory Progressivism .................................................................. Regulation: Traffic Lights and Octagons............................................................
147 149 150 151 153
Chapter XI ANTITRUST About Firms Size................................................................................................... Merger Control...................................................................................................... On Monopolies...................................................................................................... Basic Notions on Antitrust................................................................................... Additional Thoughts about Merger Control...................................................... Competition, Efficiency and Consumers........................................................... Google has not Violated Antitrust Rules............................................................ It is a Competition between Models................................................................... The Decision is Irrelevant.....................................................................................
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Chapter XII DEMOCRACY AND COVID-19 The Actual Cost of Covid-19: Democracy and Efficiency .............................. The Inefficiency of Quarantine............................................................................ The Benefits of Quarantine.................................................................................. Sweden is the Best Model..................................................................................... How has Peru Fared?............................................................................................ Coronavirus and Public Policy............................................................................ Can the Free-Market Defeat Covid-19?.............................................................
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CONCLUSIONS................................................................................................... REFERENCES....................................................................................................... ABOUT THE AUTHORS ..................................................................................
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FOREWORD
I am honored to introduce this timely and important book by two distinguished scholars, Oscar Sumar Albujar and Rubén Méndez Reátegui. In fewer than 300 pages, they provide insightful analysis on an impressive variety of topics, including plastic bags, pensions, education policy, entrepreneurship, personal health, mergers, and Uber. In the process, they promote a clear-eyed approach to regulation that emphasizes pragmatism, good information, and careful thinking. The book should attract attention from policymakers and lawyers (and students in both fields). However, it deserves an even wider audience. The writing is engaging and frequently funny, and the topics are relevant to everyone subject to regulation —meaning all of us. I highly recommend it. To appreciate the book’s contribution, I will briefly situate it in two intellectual traditions. The first is called “law and economics.” Beginning in the 1960s, scholars began applying economic theory to topics in law. Much of the early work focused on private law topics like contracts and property, but more recent work concentrates on public law, including constitutional law and regulation. Here law and economics overlap with another field called “public choice.” Public choice applies economic tools to issues in government, like voting, lobbying, and regulating. Both fields have become enormously influential. Scholars worldwide (including Sumar and Méndez) continue to teach and research in these areas. This book represents and advances these important traditions. Law and economics, as well as public choice, focus on individual incentives. This makes both disciplines helpful when assessing regulations, which often create incentives that lawmakers do not appreciate. Here are some examples from the book. Banning plastic bags does not necessarily benefit the environment. It can incentivize
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Michael D. Gilbert
people to use paper bags, increasing the demand for logging in ancient forests. Limiting the hours during which people can consume alcohol does not necessarily promote safety. It can incentivize drunk driving, as the end of “happy hour” in Miraflores pushes intoxicated drivers to San Isidro. Building more roads does not necessarily reduce congestion. Lowering the “cost” of driving can incentivize more people to get behind the wheel. One of the book’s objectives is to push readers to think carefully about incentives. We must consider the likely effects of our laws, not simply the effects we would like. Good regulation depends on it. The book focuses on another critical issue: distribution. Every regulation comes with costs. One question we should always ask is whether the costs exceed the benefits. The authors focus on that question and another one as well: who bears the costs? Sometimes the answer is surprising. Consider this example from the book. Thieves break into cars parked at fast-food restaurants. The law makes them responsible for the thefts to incentivize the restaurants to secure their parking lots. Securing parking lots costs money (security guards, cameras). To get the money, restaurants increase their prices. Who pays the higher prices? Every customer. So, poor customers without cars also end up paying for the security of rich customers with cars. Few people will think the costs of security are distributed sensibly. This book helps us appreciate these problems. This example leads to a defense of the authors’ methodology. Some critics of law and economics and public choice challenge the goals of these fields. They think scholars in these areas prize efficiency over all other values, and they think we care little about the distribution of society’s wealth or the plight of the poor. Of course, I cannot speak for everyone who works in these areas, but, in my opinion, these criticisms are overstated. Incentives matter whether one’s objective is efficiency, justice, equality, or anything else. This book, and the methods behind it, illuminate incentives. They also illuminate distribution, as the fast-food example shows. Even if your
Foreword
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primary objective is to redistribute resources from rich to poor—to promote equality, not efficiency—this book will also help. I have only scratched the surface. The book addresses many topics and concepts that I have not mentioned. Some might generate controversy, as critical analysis often does. Some readers will disagree with some of the authors’ arguments. But all readers will find something interesting and valuable on every page. The book has the potential to improve lawmaking everywhere, and I hope it attracts a wide readership. Michael D. Gilbert Vice Dean, School of Law, University of Virginia. Martha Lubin Karsh and Bruce A. Karsh Bicentennial Professor of Law. Director of the Center for Public Law and Political Economy, University of Virginia
ACKNOWLEDGEMENTS
Regulation is the focal point of this book, which will address the necessity to review, from an interdisciplinary perspective, its underlying mistakes and shortcomings through an analysis from both a theoretical and practical perspective. The presentation of the text in a clear and concrete language makes its reading enjoyable and captivating for all kinds of audiences. Due to the organization of its content in chapters, delimited by the orbit of the specific thematic axis of each one, the book facilitates readers’ research, whether they be experts or apprentices in the field. The work is structured in eleven chapters, the first three address, in a systematic and organized way: the foundations of regulation and its scope, the understanding of regulatory quality as an efficient response to problems, and the explicit and implicit effects of regulation. This structure aims to introduce the following chapters focus on analyzing the sectors and specific regulatory environments from a pragmatic approach throughout the analysis and reflection of specific cases in which the regulation has not been, in many cases, successful in providing a solution to the needs of the sector. Thus, in the remaining eight chapters, we find complex issues in regulatory matters such as the pension system, the educational system, telecommunications, transport and digital platforms, social behavior and self-regulation, consumer protection, political processes, and public choices, health, and regulation, and antitrust. The book ends with the authors’ critical approach to the role of regulation in the current Coronavirus pandemic, considering the leading sectors and factors of the discussion previously detailed. This view invites, firstly, to explicitly reflect on the failures of regulation and its continuous mistakes that imply highly onerous economic consequences for society, which is why they must be dissipated.
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Dra. María Alexandra Ortiz Cabrera
Secondly, to implicitly reflect on the call to look at regulation successes and the need for innovation in this matter. The bibliographic wealth of references encourages the reader to delve into each topic object of analysis and, simultaneously, keep their attention on the main issue: the need to intervene by producing regulation or to allow the market to generate its regulatory dynamics The authors make several recommendations in the face of this questioning, which leave the freedom to choose one or another position to individual reflection. It only remains for me to thank the honor granted by professors Ruben Mendez Reategui and Oscar Sumar Albujar for allowing me to present this work. This will have the necessary academic significance and discussion in a society that demands innovative responses in terms of regulation in the face of the troubled times we live in. Dra. María Alexandra Ortiz Cabrera Coordinator and professor of the Department of Economic Law from Universidad Externado de Colombia