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Introduction
Regulations play a critical role in shaping the institutions that impact individuals, entrepreneurs, and firms. An examination of the numerous formal rules involved in the production, consumption, and trade of goods and services offers insight into the substantial impact of regulations on society. Available data regarding regulation at the federal level in the United States suggests that regulation is increasingly relied upon to alleviate social and economic issues. A page count of the Federal Register and an analysis of RegData, which provides a quantification of regulation at the federal level, both display increases in federal regulatory activity in recent years.1,2Furthermore, Dudley and Warren show that annual federal regulatory budgets have increased in real terms while federal regulatory staffing has increased in an analysis of recent spending and staffing trends of seventy-five regulatory agencies.3
Effective regulations are of extreme importance as regulations are currently relied upon to address numerous social and economic issues in society. The primary contribution of this paper involves the examination of regulatory interpretation across regulators, entrepreneurs or firms, and the courts. Regulatory interpretation ideally involves a common understanding of the requirements necessitated by a regulation. Although this may seem straightforward at first glance, the interpretation of regulation can be complex in practice. Some specific rules that apply to a single scenario, such as laws that prohibit the hours of operation for a firm, may be relatively simple to interpret. However, other regulatory rulings are often exponentially more complex, such as those related to service in the health care industry or financial regulation. When applying a regulatory ruling in real world applications, regulatory interpretation may vary greatly across the parties involved. Additionally, regulatory interpretation may often diverge and evolve over time due to a host of changes in areas such as culture, politics, values, norms, agency leadership and employee turnover, scientific discovery, and other regulatory or legal rulings.
Regulatory interpretation has a significant impact on regulators, firms, and the courts, the three primary parties involved in the regulatory process. While regulators are often viewed as simple implementers of regulation in theory, regulators must often craft regulation from legislative orders, issue rules and regulations through congressional authority, interpret regulatory rulings, and apply regulatory rulings to various situations...