What are the three problems that economists have noted with regard to command- and-control regulation?

When delving into the realm of command-and-control regulation, an immediate red flag that is often raised by economists is the issue of economic inefficiency. This type of regulation, by nature, implements a one-size-fits-all approach to policy. Though straightforward, this approach disregards the unique operational characteristics and economic situations of individual businesses. Imagine, for instance, a regulation that requires all factories to cut emissions by the same percentage. This ignores the fact that some factories might find it far less costly to make these cuts than others. As a result, the collective costs can balloon, exceeding the benefits that the regulation seeks to bring to society at large. The economic inefficiency is manifest in the unnecessary financial strain on businesses, which can trickle down to consumers as higher prices for goods and services.
Moreover, command-and-control regulations can lead to deadweight losses in the market, a situation where the potential gains from trade are not completely realized. Heavy-handed regulations can prevent the market from reaching an equilibrium where supply meets demand efficiently, leading to either excess supply or excess demand. Therefore, economic inefficiency is a key concern that needs to be addressed when considering the implementation of such regulations.

A central tenet of an innovative and evolving economy is its ability to adapt—something that regulatory inflexibility can seriously hinder. With command-and-control regulations, the rules are often set in stone, providing little to no wiggle room for businesses to navigate or innovate within the constraints. This one-track regulatory path can stifle creativity and the natural evolution of more cost-effective, sustainable, and beneficial practices.
For instance, if a regulation specifies a particular technology for reducing emissions, it discourages alternative, potentially more efficient or newer technologies from being developed or adopted. Businesses might discover a groundbreaking method that achieves the same regulatory goals at a lower cost or with additional benefits, but due to the inflexible nature of the regulations, they are compelled to stick to the prescribed methods. This leads to a lag in technological advancement and often cements outdated practices and technologies, preventing the industry from moving forward efficiently. Addressing regulatory inflexibility entails introducing mechanisms that empower businesses to propose and adopt innovations that meet or exceed regulatory objectives, thus fueling progress and cost-efficiency.

A less often discussed but critically impeding issue with command-and-control regulation is the information problems in regulation. Crafting effective and efficient regulations requires comprehensive, accurate, and current data. Regulators need to grasp the intricacies of each industry, including the potential impacts of regulatory actions and the economic realities of the businesses involved.
Unfortunately, these requirements present a considerable challenge. Given the complexity, diversity, and dynamic nature of industries, regulators may find themselves ill-equipped with the necessary data to design optimally effective rules. This information gap can lead to regulations that are either too stringent or too lenient, potentially resulting in unintended economic consequences such as increased production costs, market distortions, and inhibited growth.
For example, if a regulation overestimates the environmental risks of a particular chemical, it may demand unnecessary costly measures from businesses that use it. Conversely, underestimating risks could lead to insufficient regulation and subsequent environmental or health damages. Therefore, addressing information problems involves improving data collection processes, increasing industry-regulator collaboration, and regularly updating regulations to reflect new insights and conditions, ensuring that they remain relevant and effective.