Government regulations often impose different costs under different conditions, thereby altering firms’ behavior by changing which activities are more or less profitable. Usually, markets are excellent at balancing the cost of projects with their projected value, yielding beneficial results of all kinds. But, by distorting relative cost structures, such artificial incentives drive labor and resources away from their most productive uses. Businesses are led to make more decisions with regulators in mind — not their consumers.

One variety of this phenomenon is called “bunching,” or the abnormal concentration of firms right below a specific policy threshold — such as a size or output limit — because they intentionally stop short of crossing that line to avoid the associated costs. If the costly threshold did not exist, many firms would presumably exceed it and produce more.

In America, bunching often........

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