The New Regulation: From Command to Coordination in the Modern Administrative State

Robert B. Ahdieh, Georgetown University Law Center

Abstract

Since its earliest days, the administrative state has been rationalized by a particular vision of the world. In the latter, public goods and free-rider problems, collective action and information failures, tragedies of the commons, and negative externalities constitute the “state of nature.” Regulation is the state’s response: command-and-control measures designed to alter the dominant incentives of individuals and institutions to defect from socially optimal equilibria. In environmental law, consumer protection, workplace safety regulation, and other domains of the modern administrative state, this Prisoner’s Dilemma is the motivating tale.

To a growing degree, however, the demands of the social and economic order in modern industrialized states go beyond this account. As to the basic structure of the financial markets and the resolution of financial crises – including the economic panic of 2008 and beyond – coercive regulation directed to the adjustment of private incentives has little to contribute. In the creation and evolution of networks – from the internet backbone and the electricity grid, to Facebook and other social networks, there is no dominant incentive for individuals to abandon the common weal. Likewise, in the emergence and evolution of standards for high-definition television and wireless communication.

It is high time, then, for a re-accounting of the project of the administrative state. To that end, this essay draws on a bit of game theory disregarded by the majority of legal scholars, to highlight the emergence of coordination as a central function of the modern regulatory state. Collective action problems, free-riding, negative externalities, and other Prisoner’s Dilemmas may justify prevailing paradigms of command-and-control regulation directed to individual incentives to defect from socially desirable equilibria. Where a dynamic of coordination is at work, however – in financial and internet regulation, network-building, telecommunications, standard-setting, and innovation, among other important areas of the modern social and economic order – a distinct story of the regulatory state becomes necessary. In both function and form, the emergence of a new regulation may be in order.