New Research Published: The Growth of the U.S. Regulatory “Ecosystem”

Recently, our co-founders Michael Bommarito and Daniel Martin Katz published their in-depth analysis of the “Regulatory Ecosystem”.

In this paper, Bommarito and Katz argue for a new approach to studying market regulation. They describe the economy as an “ecosystem”, and individual companies as “organisms” within that ecosystem. Companies influence and affect each other in a number of ways, just like organisms in a large ecosystem. The authors extend this metaphor further, discussing how government regulations affect companies in similar ways to how organisms’ environments affect them. Organisms have to adapt to changes that occur in their environment. So too must companies adapt when their regulatory environment changes.

heat map

“Heat Map” of Regulatory System Temperature

The SEC’s 10-K company reports play a huge role in this ecosystem research. 10-K reports contain many details about a company, including its history, organizational structure, equity, holdings, and earnings per share. This makes 10-Ks useful when studying companies’ interactions with government laws and regulations. Bommarito and Katz’s research begins with the SEC, and its inception of the “EDGAR” system in the 1990s. (“EDGAR” stands for Electronic Data Gathering, Analysis, and Retrieval system.) The EDGAR system made tens of thousands of 10-K reports available online. This in turn made it easier for Bommarito and Katz to apply robust natural language processing (NLP) techniques to create maps of references to Acts within the U.S. Code.


The paper also establishes that different companies move around within the regulatory ecosystem. Just as organisms find their own special niche in any environment, a company maneuvers in and around regulatory obstacles in a manner unique to its specialized areas and specific needs. Regulation affects companies in much the same way. Not only can new regulations (or the repeal of regulations) affect ecosystem temperature, but changes in a company can also affect how it interacts with the ecosystem:

Companies … mutate, grow, or die over time, changing both the behavior of institutions and other companies as well as their own exposure to regulatory forces.

Bommarito and Katz provide a detailed methodology for measurement of the diversity of the regulatory ecosystem. They use multiple dimensions of measurement to show that the regulatory burden has generally increased over time. This basic idea has been prevalent in both the government and the business community for many years now, but with this paper, Bommarito and Katz take the next big leap toward defining and codifying the specifics of this increasing regulatory burden. This paper goes a long way in describing these complex ideas in broader, more accessible terms, and anyone interested in the changing landscape of government regulation should take a look at the findings.