This chapter offers responses to the question ‘why regulate?’ and ‘why do regulatory regimes emerge in a particular form?’ by examining ‘theories of regulation’. While chapter 1 introduced the readers to the economic justifications of regulation, this chapter delves into the different theories that explain why we need regulation and how public and private actors interact to shape the content of regulation. These theories refer to a set of propositions or hypotheses about why regulation emerges, which actors contribute to that emergence, and typical patterns of interaction between regulatory actors. It discusses theories from several disciplinary approaches, classifying these theories into four kinds: public interest, private interest theories, systems and institutionalist approaches and ‘hybrid’ theories.

This chapter introduces the concept of CPR and gives a high-level overview of the chapters to follow. It also defines key terms, presents some background statistics on political spending over time, and offers an initial discussion of the extent to which business has captured the political process.

Chapter 3 lays out the book’s central theory as well as the theory’s observable implications. It argues that powerful producers seek to use their privileged knowledge of the risks and benefits of their products (and regulators’ dependence on that knowledge) to systematically push their own out-of-patent products and those of generic sellers off the market via regulation, in favor of more expensive, patented alternatives. Producers accomplish this first by strategically revealing negative information about out-of-patent products as a means of convincing regulators that these products require stricter regulations. Second, producers support regulatory institutions that require existing products to be reevaluated under a precautionary standard, meaning that failure to prove an existing product is safe leads to the assumption it is dangerous. These precautionary institutions help innovative producers eliminate out-of-patent products more systematically, allowing them to acquire stricter standards not via the provision of damaging information, which carries some reputational risks, but through the withholding of favorable information. This chapter also lays out expectations for where we might expect these precautionary institutions to be adopted, given the distribution of preferences across countries, and it shows why such precautionary institutions should tend to be supported by developed countries and opposed by developing ones. Finally, the chapter argues that because international standard-setters ought to be susceptible to the same sorts of information problems as domestic regulators, and given the distribution of national power within these organizations, we can expect international standard-setters to replicate the precautionary institutional preferences of their wealthier members. We can additionally expect this to create the same tendency on the part of international standard-setters to arbitrarily impose stricter standards on more affordable products, despite the fact that this creates trade barriers that disadvantage poorer members and that directly conflict with these standard-setters’ stated mission.

Chapter 1 provides an introduction to the book. Motivating the book with examples of various regulatory barriers to agricultural trade that have proven particularly contentious, this chapter asks what might explain these barriers and whether we should expect current international solutions to resolve them. The chapter provides a brief overview of the book’s argument regarding how producers leverage private information to acquire the sorts of regulatory barriers that the opening examples describe. In addition, it previews the book’s main contribution and gives a brief chapter outline.

Focusing on firm-level behavior in the US pharmaceutical and agrochemical industries, Chapter 4 provides evidence that companies do indeed seek stricter standards on their own, out-of-patent products in order to boost sales of newer, patented substitutes, even providing negative information about their own products in pursuit of this goal. In order to show this, the chapter leverages petitions submitted by pharmaceutical and agrochemical companies to the US FDA and EPA, respectively, requesting that the agencies place stricter standards or all out bans on products that these companies themselves developed. In the case of the pharmaceutical petitions, the chapter provides evidence that all but one of the requests for a product ban has targeted a drug that is about to lose or has already lost patent protection and for which the company had a more recently patented substitute. This suggests that such requests are not publicly minded attempts to ensure dangerous products remain off the market but, instead, are strategic gambits to boost profits of exclusively produced alternatives. In addition, the chapter provides a statistical analysis of petitions submitted by agrochemical companies and farm groups to show that, whereas farmers are no more likely to seek stricter standards on out-of-patent pesticides, agrochemical companies systematically request stricter standards on these products while requesting more lenient standards on products still enjoying patent protection.

Chapter 5 takes a deep dive into the history of US agrochemical regulation in order to show that innovative companies were a major force behind the adoption of institutions that required the precautionary reevaluation of existing products, in opposition to generic producers who stood to lose out from such institutions. Using an original dataset that tracks changes to US agrochemical regulations over a two decade period, the chapter then provides evidence that in the wake of these institutions’ implementation, regulations have become stricter on older, less profitable products over time for reasons that cannot be attributed to health, safety, or obsolescence alone. In addition, the chapter provides evidence that the mechanism behind this outcome is not the political power of producers but rather their ability to leverage their information advantages under a regulatory regime in which products are subject to precautionary reevaluations.

This chapter clarifies why blunt force regulation is so distinctive. It begins by outlining two underlying logics regulatory enforcement, namely, “rules-based” regulation (which prioritizes effectiveness) and “risk-based” regulation (which prioritizes efficiency). Drawing on case details, it then illustrates how blunt force regulation fits into neither category, offering neither efficient nor effective regulation in the long-term. Instead, it represents an unusual combination of indiscriminate enforcement (which devalues compliances) and arbitrary but inflexible enforcement (which increases regulatory distrust and business uncertainty). This raises the question: Why blunt force regulation?

This chapter probes the short- and long-term costs of blunt force regulation. Case studies and local news reports show that workers do protest, businesses do resist, and local bureaucrats do publicly criticize the short-term nature of blunt force solutions. How does the state guard against the political risks of blunt force regulation? Using two cities as case studies – one wealthy and developed, and the other poor and industrial – this chapter shows how the state concentrates the costs of blunt force pollution reduction on the groups that are the least able to push back. It targets smaller, private firms or industries that rely on temporary, transient labor. These strategies are effective at preventing unrest, but exacerbate inefficiencies in the economy and may complicate efforts to reduce pollution in the future.

During the second half of the twentieth century, the collapse of European Empires increased the number of sovereign states. At the same time, higher taxation and more aggressive regulations by governments of wealthy countries left companies and wealthy individuals seeking offshore homes for capital. In 1948, the Liberian government passed legislation to bring it into this market for offshore services, creating a new channel by which to monetize its sovereignty. The three laws passed in that year established the Liberian shipping registry and created loose corporation and tax laws intending to attract foreign investment.This chapter examines the success of the Liberian shipping registry, which by the 1960s was the largest in the world in terms of tonnage and remained one of the largest in the world even through the collapse of the Liberian state during the civil wars. It contrasts this with the failure of Liberia’s efforts to become a tax haven. This contrast allows for a broader exploration of the "market" for sovereignty and its limits since the middle of the twentieth century. It shows that while, in theory, any state with formal recognition might try to attract capital by committing to lower levels of regulation, this commitment alone is not enough to generate investment and economic development.

Congress has previously passed environmental and administrative laws that tethered the regulatory process to scientific evidence. Federal agencies were obliged to weigh scientific data, as well as dispassionate economic and legal analyses, as they developed and implemented regulations. The Trump administration sought to untether the rulemaking process from science and other forms of hard evidence and expert analysis by putting contrarian scientists in charge of science advisory boards and by sidelining the views of career scientists at federal agencies and academic scientists. That strategy paved the way for oil and gas insiders at the helm of these agencies to make decisions aligned with positions advocated by the oil and gas industry, which had shared its wish-list on deregulatory actions with the Trump administration. The administration sought to undermine the scientific basis of environmental regulations by promulgating the deceptively named Science Transparency Rule that would block federal agencies' consideration of epidemiological studies that had linked pollution to adverse public health impacts. That rule was built of the decades-long views advocated by oil- and gas-funded think tanks and pro-oil members of Congress. Fortunately for the scientific integrity of rulemaking, in January 2021 a federal court ruled that the EPA had exceeded its powers in promulgating that regulation and subsequently vacated the rule.

Can judicial review effectively check regulators’ behaviors? The answer largely depends on how regulators behave – what motivates them. If, as in traditional economic theory, regulators mostly maximize their narrow self-interest, then there is little that judicial review can do to stop regulatory capture. Judges may invalidate specific regulatory decisions after the fact, but they cannot overcome the inherent advantages that special interests enjoy in the way of offering lucrative future business opportunities or campaign financing. If, however, regulators care not just about material incentives, but also about their reputation, then judicial review can shape regulators’ behavior indirectly, by providing information on how regulators behave. Regardless of whether courts intervene and strike down specific regulatory decisions or not, the process of litigation can generate reputational pressures that propel the regulators to change their behavior.

What happens when sustainability concerns clash with the company’s bottom line? On paper, various systems should deter unsustainable behavior: fear of liability (legal sanctions), diminished business opportunities (reputational sanctions), or guilty feelings (moral sanctions). Yet, in reality, companies do not take these legal, reputational, and moral sanctions as given. They rather count on their ability to dilute the expected sanctions. Companies reduce the probability of being caught by controlling the information environment and creating plausible deniability. They are often the ones dictating the public perception of whether they behaved sustainably or not. Companies can also dilute the sanction that is imposed once they are caught, by capturing the regulators, and reducing the guilt associated with immoral behavior. Recognizing that all systems of control can be gamed opens up space for rethinking policy implications, such as designing the legal system in ways that balance the non-legal systems’ areas of malleability.