Regulation and the Internet: Public Choice Insights for Business Organizations

Interoperability and Privacy and Security

Article Snapshot


Sirkka L. Jarvenpaa, Robert Simons and Emerson Tiller


California Management Review, Vol. 46, pp. 72-85, Fall 2003


Authors assert that public choice is still an effective tool to understand regulatory changes in the digital economy.

Policy Relevance

By understanding what forces are at work in the digital economy, and making modifications to public choice in that context, managers can understand regulatory changes and prepare for them.

Main Points

  • The United States has seen lots of regulation dealing with the digital economy, which changes how companies operate on the Internet.
  • “Public Choice” is a leading theory about how business regulation comes to be. Traditionally, it says the regulation comes from legal bodies in a supply and demand exchange with the businesses that the legal body regulates. The incumbent businesses “buy” regulation that they want using their “electoral resources,” which are votes, campaign contributions, and monetary support, etc.
  • This theory can be adapted to the digital economy on the Internet by making a few small modifications. The theory is important in this context as well because the regulations made by policy makers are meant to last for a long time.
  • The Internet does make it harder for policy makers and businesses to engage in regulatory bargaining because on the Internet it is more difficult to collude and reduce competition because of the low barriers to entry.
  • It is more difficult to enforce regulatory power on the Internet because the power is diffused globally. However, there is still some power when there is a local physical presence in the business operations.
  • The main modification of public choice theory to the Internet is recognizing that technology standards are the crucial method of regulation. The other modification is realizing that the role of government can vary and flip flop, from supplier to consumer of regulation, in the Internet context.
  • An understanding of what underpins regulation in the business context will help businesses understand how the ways they store, share, protect, and sell data are affected.

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