Regulation and Investment: Uncertainty, With an Application to FCC Title II Regulation of the Internet

The impact of regulation on investments in fixed capital has been a central focus of economic inquiry for decades. As a general rule, economic theory can suggest either a positive or a negative role for regulation, depending on the circumstances. Recent years have seen a surge in empirical studies that seek to estimate the overall impact of regulation on investment and overall economic activity. In addition, more traditional studies analyzing specific micro-level policies have continued to contribute to our understanding. In this paper, we explore the unique challenges facing policy evaluations of the effects of regulation on investment and provide guidance on overcoming the adverse circumstances. In addition, we discuss the impact of two types of uncertainty – uncertainty regarding the actions of regulators, and uncertainty regarding the likely impact of regulations – and draw implications for the modeling of the actions of both. We close with a specific application to the current debate over net neutrality regulation of Internet service providers.

We showed that Title II regulation should be expected to increase costs, and therefore is the type of policy that should be expected to reduce investment. Second, we reviewed field-specific evidence that suggested that the scale of the negative effect could be quite large, from about 5.5 percent to as much as 20.8 percent.