# Regulations: Mathematical Calculus

by ishambat | December 10, 2012 at 09:46 pm
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When I was writing on the Internet about the need for some regulations, I was asked where does one draw the line between rightful regulations and wrongful regulations. I believe that this can be computed mathematically.

On one side of the equation should be cost of the events that the regulation exists to prevent multiplied by the chance of those events happening. On the other side of the equation should be the cost to the taxpayer of enforcing the regulation plus the cost to business of complying with the regulation. That way it could be possible to determine mathematically which regulations do more good than harm and which regulations do more harm than good.

Thus, if the risk is that someone would lose money, that sum of money should be computed and multiplied by the chance of someone losing that money. This then should be compared to the sum of what it takes for the government to enforce the regulation and what it takes to businesses to comply with the regulation. If the risk is that someone would get sick, should be computed the medical bills for the sickness and multiplied by the chance of someone developing the sickness, then compared with the sum of what it takes for the government to enforce the regulation and what it takes to businesses to comply with the regulation. In both cases, the costs can be computed objectively. Then it can be possible to compute mathematically which regulations on such things are worthwhile and which are not.

Besides these objective computations, there are also things that aren't easily quantified. If the risk is that someone would die, that event is not quantifiable monetarily. There are two things that could be done about this. One is to assign a huge financial value to such a risk, such as what one gets from a wrongful death statute (\$5 to \$10 million). Another is to make that term infinity, ensuring that anything that carries a risk of death is prevented at all costs. In either case, it should be prohibitively expensive to do things that lead to people's deaths, and regulations designed to prevent people's deaths should be enforced in all industries, from medicine to coal.

While some would rather over-regulate than under-regulate, and others see all regulation as evil, this is a matter that in most cases has an objective solution. The risk of someone losing money, or the risk of someone getting sick, can be quantified mathematically. A human life cannot be quantified mathematically, and regulations designed to prevent people's deaths should hold an upper hand.

The same however is not the case with many of the more nitpicking regulations out there. Very little is gained by demanding that a business comply with pages and pages of regulations the bulk of which are designed to prevent events that hardly ever happen. A regulation must be designed to prevent events that happen, not events that don't happen. This once again can be computed mathematically - by looking at the chance of the event happening. If it is extremely low, then the term on the left (the cost of the event times the chance of that event happening) becomes vanishingly small, and the computation shows that the regulation causes more harm than good.

In any case, this at least is an issue that can be looked at objectively. In most cases it is possible to compute mathematically which regulations should be kept and which regulations should be discarded. I highly recommend governments to make this calculus regarding their regulations. Some issues have objective solutions, and this is one of such issues.

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