Is the inference to be drawn that state hostility produces strength while state support produces neglect? Of course, an impressive number of factors other than the state help shape the organizational presence of a church. The concern of this essay, however, is the state regulation of churches and the consequences of the regulatory environment, often unintended, for both state and church. Regulation and Religion Regulation, as defined in this essay, is the setting of limits on group or individual conduct for public purposes.
Through regulation, the state sets limits rather than proscribing behavior. Theodore J. Lowi has argued that regulation may be seen as morally ambiguous if the behavior to be regulated is deeply controversial. Groups engaged in the activity will resent the activity being constrained, while critics of the activity will question why it has not been proscribed. ) Thus, if religion is judged as the opiate of the people, opponents of churches will question why churches are not banned rather than regulated.
If freedom of religion is of paramount value, supporters of a church may object to regulation. Regulation may embrace a remarkable range of activities. We most frequently think about regulation in the economic sphere. Here the states intervention is most likely to occur when there is market failure. A firm or combination of firms has established a monopoly that allows them to set higher prices for a product or a service at lower levels of production than would be found in a competitive market environment.
Through regulation, the state establishes a structure to review the behavior of the firm. On the basis of the information gathered, the state may establish production guidelines and ceilings on prices. The state may also establish standards to maintain the quality of the product and process by which the product is produced. Regulation has its critics.  Indeed, a theory of regulatory failure has developed; a central point in this theory is that regulation becomes ineffective over time and often works to the advantage of the regulated rather than the regulators.
It is in the tradition of this critique of regulation that this essay seeks to apply regulatory analysis to church-state relationships. Three recurring themes found in studies of regulatory failure are really variations on the theme of the ineffectiveness of regulation. First is that of capture. Over timeperhaps indeed from the inception of regulationthe firm or the industry can secure state resources and insulate itself from competition because of a number of advantages that it has over the designated regulatory agency. Most notably, these advantages are information and political power.
 The second theme is that of adaptation. The regulated enterprise adapts to the variety of incentives and disincentives created by the regulatory regime. For example, if regulation of telecommunications governs local calls but not long distance calls, then the telecommunications firms energies are likely to be directed at realizing income from its long distance service. If state subsidies are available for certain services but not for others, the regulated telecommunications firm is likely to adapt its commitments to services with the enhanced return provided by subsidies.
Adaptation to the regulatory environment may undermine the objectives identified in establishing the original regulatory regime. The third theme is that ineffectiveness may be brought about by over-regulation. So complex a set of responsibilities may be placed on the regulators that the end result is underregulation. The state elaborates a set of objectives to regulate a specific industry but finds that it has created far too demanding a regulatory framework.
This leads in turn to the paradox of under-regulation as the states regulators retreat from the daunting task of regulation. For example, the competing objectives of universal service, cost control, and environmental quality often pose formidable challenges to the task of regulators. Regulation of utilities is a contemporary example of how the complexity of regulation, with the competing goals of universal service, rate setting, and air quality, can produce regulatory quandaries.