The Perils of Regulating COVID–19

Insights from Kirznerian Entrepreneurship and Ostromian Polycentricity

Originally published in Economics of Governance

During the COVID-19 pandemic, governments at every level in the United States made various policies to reduce the spread of the disease and to mitigate pandemic-related economic impacts. Such policies included stay-at-home orders that shuttered “non-essential” businesses and economic stimulus programs that provided financial assistance. Using Israel Kirzner’s insights from “The Perils of Regulation,” we argue that local, state, and federal COVID-19 policies have had and will continue to have long-run spillover effects and other negative unintended consequences. Pandemic policies have stifled entrepreneurial discovery and created opportunities for superfluous discovery, thus directing entrepreneurial efforts in directions that would not have existed otherwise. The normative implications of this analysis are that policymakers should better account for the wide variety of seen and unseen costs of policies that are likely to have many negative unintended consequences, regardless of the intentions behind such policies. One of the most effective ways to limit the perils of regulation is polycentric governance systems. With multiple, overlapping decision-making centers, polycentric systems allow for policymakers to experiment with different policy approaches and learn from other jurisdictions. Polycentric systems also limit the spillover effects of negative unintended consequences onto other jurisdictions.

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