Government safety and emissions standards for cars raise the costs of
both producing and operating cars. Environmental policies that require
firms to treat their waste products and emissions increase the overall
costs of those firms. In both cases, these costs are much greater than the
direct financial costs of administering the regulations.
- Costs of Compliance
Government regulation and supervision generate a flood of reporting and
related activities that are often referred to collectively as red tape. The
number of hours of business time devoted to understanding, reporting,
and contesting regulatory provisions is enormous. Regulations dealing
with occupational safety and environmental control have all increased the
size of non-production payrolls. The legal costs alone of a major -
corporation sometimes can run into tens or hundreds of millions of
dollars per year.
Households also bear compliance costs directly. The annual exercise of
completing income-tax returns requires every taxpayer to spend
considerable time or money making sure that the forms are correctly
filled out and submitted on time. In addition to costs of compliance, there
are costs borne as firms and households try to avoid regulation. There is a
substantial incentive to find loopholes in regulations. Resources that
could be used elsewhere are devoted to the search for such loopholes and
then, in turn, by regulators to counteract such behaviour.