Changing regulation can drive innovation and sometimes be a hindrance

It's baaaack!

Governments create laws that regulate the way businesses operate. When those laws change, businesses adapt their operations to conform to the new rules. A recent ULI article talked about the greening of the real estate industry and made an interesting point about the incandescent lightbulb. In 2007, Congress passed a bill banning the sale of incandescent lightbulbs beginning in 2012. Naturally, the lightbulb manufacturing companies immediately started development of alternative lightbulb types that were more energy-efficient. However, in 2011 the measure was repealed. Such back and forth of government regulation stimulated the creation of new lightbulb technology. But it also costed the lightbulb companies because they has to bring incandescent lightbulb production back on line. Businesses will adapt to change over time, but each change in regulation carries with it switching costs-costs that are ultimately passed on to consumers. Government should regulate in ways that accomplish strategic goals. If the strategy of the government is to foster innovation and reduce energy usage, then banning incandescent bulbs makes sense.

Ed McMahon’s take on the issue:


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