Federalism and Regulation: An Overview

This paper examines arguments for and against the centralization of regulation,using the wireless communications industry as a case study. Several factors suggest that the burden increasingly ought to fall on proponents of decentralization. Scale, scope and network efficiencies are growing in many markets, raising the potential costs of balkanization. And rapid technological change strains the expertise of under-funded, under-skilled local regulators. At the same time, one must be careful not to assume that skilled regulators will necessarily do the right thing. The political context in which regulators operate is often decisive. With wireless we expect that more efficient outcomes are far more likely with federal than state regulation. We do not believe, however, there is a simple way to generalize about the level of government best suited to regulating from an economic efficiency standpoint. The most that theory can offer here is a disciplined way of thinking about the issue.