The Unexpected Consequences of Private Regulatory Standards
Editor’s Note: Private standards are going to be essential for protecting both public health and economic growth. See, An Updated Look at the Federal Policies Governing How Agencies Use Voluntary Consensus Standards in Regulatory, Procurement, and Science Documents.
From: The Regulatory Review
When people decide to buy or sell a product, they need to agree on its price. To make that decision, they have to assess the quality and utility of the product, depending on its features. This is where product standards or product specifications come in. They describe the product’s technical features, its physical appearance, and how it was produced.
Without such standards, it is difficult to engage in commercial transactions. As a result, market actors “demand” these standards. But the issue is, who will “supply” them? Standards have properties of public goods—once developed, anybody can adopt the standards without having to pay for them, which leads to the free-rider problem and under-provision of the standards; hence, there is a market failure in the standards market. Governments are often charged with supplying public goods. Therefore, one would expect that governmental bodies will step in to supply product standards.
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