Regulatory Reform 101 for County and Municipal Policymakers

Federal and state regulatory reform is underway (at least in many states). What about local regulations and ordinances?

I recently gave a talk to a group of county executives who were interested in what policy wonks like me work on. It led to some pretty good exchanges between me and the county executives, about the tradeoffs regulations (and all policies) create. Below, I’ve adapted the talk — I hope you enjoy it!

Introduction

Regulations are created to solve real problems, but over time they tend to accumulate, often without systematic review. I study the economics of regulation, which I’ll explain momentarily, and my talk today summarizes evidence on how regulatory accumulation affects economic outcomes and how jurisdictions can modernize their regulatory systems without sacrificing legitimate public goals such as safety, health, or environmental protection.

The evidence supports three core findings:

· Regulatory accumulation is the default, absent deliberate management.

· Accumulated regulations have measurable economic costs, including slower growth, higher prices, reduced business formation, and increased inequality.

· Targeted regulatory management can reverse these effects, often at very high returns on investment.

I. A Framework for Understanding Regulation

What do I mean when I say, “the economics of regulation?” I generally think about it in three stages.

Stage 1: How Regulations Are Made

Nearly all U.S. jurisdictions follow a formalized rulemaking process. Examples of key institutional features may include:

· Notice-and-comment requirements

· Required economic analysis (e.g., cost–benefit analysis, paperwork burden estimates)

· Requirements—or lack thereof—for periodic review of existing rules

These features determine how easily regulations enter the system and how rarely they exit. Basically, how the sausage is supposed to get made, if there is a formalized process…

Stage 2: Regulatory Outputs

Beyond the formalized process, regulators produce outputs, including:

· The quantity of rules on the books

· The rate at which new rules are added

· The design of rules (e.g., flexibility, exemptions for small businesses, performance-based vs. prescriptive standards)

Basically, how the sausage actually gets made (as opposed to what the process claims it does). Over the past decade, much of my work has focused on this stage—developing quantitative measures of regulatory output that can be compared across jurisdictions and over time.

Stage 3: Economic Outcomes

Regulatory outputs can be linked to measurable outcomes, which is what economists like me need to do in order to make claims about the relative merits of different policies. Examples of economic outcomes include:

Business outcomes:

· New business formation

· Employment

· R&D spending and patenting

Household outcomes:

· Consumer prices

· Income levels

· Poverty rates

· Income inequality

The central question is, for someone studying the economics of regulation, is not whether regulations exists, but how regulations affects people’s economic lives.

II. What the Data Show

1. Regulatory accumulation is the norm

The buildup of regulations over time seems to be the default setting in modern democracies, at all levels of governance that I’ve studied so far. Using data from the RegData project:

· Federal regulatory restrictions increased from about 400,000 in 1970 to about 1.1 million today.

· States vary widely: Idaho has about 27,000 restrictions, California about 400,000, and the median state about 125,000.

· State regulatory codes grow about 1–2% per year on average, absent intervention.

In short: without active management, regulations steadily pile up.

2. Accumulation has economic consequences

The findings are consistent across multiple studies:

· Economic growth: Regulatory accumulation is associated with roughly 1 percentage point lower annual growth on average. Given typical growth rates of 2–3%, this is substantial.

· Business formation: New firm creation declines as regulatory burdens rise.

· Prices: Higher regulatory burdens correlate with higher consumer prices.

· Poverty and inequality: States with greater regulatory accumulation tend to have higher poverty rates, and evidence suggests regulation contributes to income inequality, particularly through restrictions such as occupational licensing that limit entry and upward mobility.

These estimates are typically produced while controlling for taxes, demographics, and other policies. Regulation is not the only driver—but it is a meaningful one.

III. Addressing a Common Objection: “But Regulations Are Meant to Help”

A common concern is that regulations were enacted to address real harms—fire safety, health risks, environmental damage—and therefore reducing regulation must worsen outcomes. That framing misses the point.

The issue is not regulation versus no regulation, but whether existing rules still deliver benefits commensurate with their costs.

A concrete example from housing policy illustrates the challenge:

· Many building codes require multi-stairwell apartment designs based on fire standards developed a century ago.

· Modern safety technologies (sprinklers, alarms, materials) substantially reduce the original risk.

· Allowing single-stair designs can lower construction costs, increase density, and reduce housing prices—without sacrificing safety.

The economic harm arises not from safety regulation per se, but from outdated rules that are never revisited. Most jurisdictions lack systematic processes to ask whether a rule is still working as intended and whether benefits still justify costs.

IV. Evidence That Reform Works

Jurisdictions that actively manage regulation see measurable gains, including:

· British Columbia reduced its regulatory stock by roughly one-third and experienced improvements in growth and entrepreneurship.

· Virginia’s Office of Regulatory Management (ORM) estimated about $1.4 billion in savings from systematic review and modernization.

As I’ve written here in the past, successful reforms share three features:

· A quantitative baseline

· A clear target and tracking mechanism

· Accountability—someone responsible for results

These are management reforms, not ideological exercises.

V. Housing Affordability and ROI

Housing illustrates why this matters now:

· Virginia identified building code provisions that raised costs without commensurate safety benefits.

· Estimated impact: about $24,000 reduction in home construction costs per unit.

· The reform effort required roughly three years and four FTEs, yielding an estimated ROI over 1,000% (when looking at total estimated annual cost savings of $1.4 billion).

New AI-based tools further reduce the cost of identifying red tape and conducting economic analysis, making these reforms feasible even for smaller jurisdictions.

VI. Implications for States, Counties, and Cities

Any jurisdiction can adopt a pragmatic regulatory management strategy:

· Use data to establish a baseline

· Review regulations systematically

· Focus on outdated, duplicative, ineffective, or unnecessarily costly rules

The empirical evidence predicts:

· Faster economic growth

· More startups

· More affordable housing

· Greater economic mobility

Please don’t fall for the false dichotomy of regulation vs no regulation. This is not about abandoning protections, if they actually work. It is about making the regulatory system work better.