Regulation

Let's consider how regulation would improve the allocation of resources to fishing. Fishermen would be legally limited in how much fish they can catch. There are some real difficulties in making this work. The regulators have to figure out about how large a catch would be efficient and find ways to be sure that the fishermen do not evade the regulations and catch more fish anyway. The objective would be to reduce the catch of fish and still have the limited quantity of fish caught in the least costly manner.

It is difficult to see how regulation could apply to the public transportation example. In any case, regulation has some strong disadvantages -- it is inflexible and tends to create problems as well as (perhaps) solve them.

All the same, regulation has been the favorite response of government (perhaps because it is cheap and/or easy to understand) and as a result we have a good deal of experience in making regulations work not too badly.

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