Emily Schaefer, a research fellow and director of the Center on Entrepreneurial Innovation at The Independent Institute and assistant professor of economics at San Jose State University, has an op-ed piece in the San Jose Mercury News comparing private and government regulation of the auto industry:
Compare the NHTSA [National Highway Traffic Safety Administration] and Consumers Union, both of which have just over 600 employees. The government agency costs taxpayers some $870 million annually, while the Consumers Union costs taxpayers nothing and, in fact, generates more than $200 million annually in revenue.
Consumers Union provides free services such as the ConsumerReports.org Web site, where updates on product safety and recalls are available, as well as premium products like Consumer Reports magazine.
Private organizations such as Consumers Union must maintain a reputation for accuracy and integrity. If they fail to do so, they lose support, credibility and revenue. Government agencies must meet no such market test. In fact, it is often failure that gets rewarded with larger budgets, additional employees, and more investigative or regulatory authority. Their incentive, therefore, is to exaggerate problems.
The point about failure being rewarded by larger budgets and more employees is true in financial regulation as well -- the Securities and Exchange Commission, post-Enron, comes to mind. Link via Coordination Problem.
