Coase-Sandor Working Paper Series in Law and Economics
It is essential for environmental protection that private actors be able to anticipate government regulation. If, for instance, the Biden Administration is planning to tighten regulations of greenhouse gas emissions, it is imperative that private companies anticipate this regulatory change now, not a few years from now after they have constructed even more coal- and gas-fired power plants. Those additional power plants will mean more irreversible greenhouse gases, and these plants can be politically challenging to shutter once built. The point is general to private actors making decisions in the shadow of potential government regulation. Better information about future government actions is thus critical for the benefit of both private actors and society at large. In this Article, we consider market-based and non-market-based means by which to generate information about future government action. We find no perfect answer.
We consider three market-based solutions—prediction markets, the use of equity markets to hedge against future government action, and machine-learning and predictive technologies—and three government-based solutions—greater transparency, the development of intellectual property rights in predictive information, and prediction-forcing regulation, which is regulation that requires private actors to make public predictions about future government action. None of these is a panacea. The market-based solutions founder on the limitations and thinness of markets. Government-based solutions come with significant structural downsides related to the division of authority among different levels of government (federal versus state versus local) and different branches of government at each level (executive versus legislative). We conclude that prediction-forcing regulation may be the most promising avenue, though it too is likely not a full solution.
Jonathan S. Masur and Jonathan Remy Nash, "Promoting Regulatory Prediction", Coase-Sandor Working Paper Series in Law and Economics, No.930 (2022).