Class 10Class 10 Regulation policy

March 19

St-Petersburg State University Graduate School of Management

Master of International Business Program Business-government relations

??? Discussion questions

• The firm and regulatory environment. different types of regulation.

• Why regulate? Economic theory of regulation. Rationales for regulating.

• Regulatory strategies and instruments.

• Who regulates?

• Challenges of regulation in 21 century

Regulation

•

Macroeconomic regulation

(fiscal, monetary policy, social, trade policy)

Legislation (law-general regulation, discretional

regulation)

The FirmDirect or indirect impact

Regulation

– Rules administered by a government agency to influence economic activity by determining prices, product standards and types, and the conditions under which new firms can enter an industry.

– A form of secondary legislation which is used to implement a primary piece of legislation appropriately, or to take into account of particular circumstances or factors emerging during the gradual implementation of, or during the period of, a primary piece of legislation.

Why regulate?

A. “Public interest” explanations

1. Legislative declaration

2. Market failure

B. “Private interest” explanations

1. Regulation sought by the regulated.

2. Regulation sought by other interest groups

Economic theories of regulation

Two broad economic theories of regulation are:

• Public Interest Theory

– The public interest theory is that regulation seeks an efficient use of resources.

• Capture Theory

– Capture theory is that regulation helps producers to maximize economic profit.

Why regulate? Rationales for regulating

Monopolies and natural monopolies Externalities Information inadequacies Continuity and availability of service Anti-competitive and behaviour

predatory pricing

Regulation: set of interventions

Controlling prices Setting price floors Ensuring equal opportunities Regulating employment practices Specifying qualifications Providing for solvency Controlling the number of market

participants Limiting ownership

Regulation: set of interventions (cont)

Requiring premarketing approval Ensuring product safety Mandating product characteristics and

technology Establishing performance standards Controlling toxic emissions and other

pollutants Specifying industry boundaries Allocating public resources Rationing common pool resources …

Why regulate? Rationales for regulating.

Public goods Unequal bargaining power Scarcity and rationing Distribution justice and social policy Rationalization and coordination Planning

Regulatory strategies

Command and control

Self-regulation

Incentives

Market-harnessing controls

Competition laws

Franchising

Contracting

Tradable permits

Regulatory strategies

Disclosure

Direct action

Rights and liabilities laws

Public compensation / social insurance

Who regulates?

Self-regulators

Local authorities

Parliament

Courts and tribunals

Central government departments

Agencies

Directors general

Challenges for modern regulation policies

Over the past decades:

• The structure of modern industrial economies has changed

• Development of new industries and areas of business

• Deregulation process (fighting red tape and lowering administrative barriers)

• Privatization

• Globalization