The Emergence of Regulation: Market failure, Subversion of Justice and Inadequacy of Private Law

Abstract

Often the justifications for the emergence of public regulation have been explained as instances of ‘market failure’. In such instances, it is always argued that somehow an unregulated market has failed to produce social outcomes in accordance with the public interest. Market failure theory is a classic economists’ view regarding the emergence and justification of regulation. Nevertheless, market failures are ubiquitous and so cannot be put forward as a theory to explain the emergence of regulation. However, one might like to think from a different perspective – from a legal point of view – that regulation actually emerges because of the subversion of justice, inefficiency or inadequacy of the common law. It is the failure of contract and tort law as a mechanism to secure property rights that has prompted the emergence of regulation. However, there is another view that regulation also emerges on the basis of ideas of fairness and rights.