Standardization and Compliance Costs: Relevant Developments at EU Level

This article discusses government regulation and the consequent compliance costs for the private sector from the perspective of transaction cost economics. In many cases, government regulation is shaped as legally binding standards. In order to comply with these standards, private sector firms meet various types of transaction costs, such as the bonding costs that the principal/agent relationship of government regulation brings about. On the other hand, good standards may reduce transaction costs. Therefore, optimal design of government regulation requires the design of standards with the lowest possible transaction costs. Due to network externalities and economics of scale, and in order to guarantee a level playing field, good coordination and unifying standards within the EU can be beneficial. This article provides examples of such standards.