“Most of economics can be summarized in four words: ‘People respond to incentives,’” says economist Steven E. Landsburg. “The rest is commentary.”
When governments create a regulation, they are creating an incentive for individuals and businesses to respond in a particular way. But the people who create the regulations — government regulators — also respond to incentives.
As Elon Musk, the CEO of Space X and Tesla Motors, explains,
There is a fundamental problem with regulators. If a regulator agrees to change a rule and something bad happens, they can easily lose their career. Whereas if they change a rule and something good happens, they don’t even get a reward. So, it’s very asymmetric. It’s then very easy to understand why regulators resist changing the rules. It’s because there’s a big punishment on one side and no reward on the other. How would any rational person behave in such a scenario?
