week 1

Question 1

important scandals?

Answer 1

• Diesel scandal: led their customers to think that their cars were more environmentally friendly than they actually were
• Theranos scandal: false claim about innovative product => blood test that supposedly ‘discovers all of your diseases’
• Collapse of FTX: diverted customers’ funds to another company => found guilty of defrauding FTX investors out of billions

Question 2

what is market regulation?

Answer 2

• from the perspective of its scope:
  => narrow sense: state regulates social behavior in the marketplace
  => broad sense: all forms of social control (intentional or not; from the state or other social institutions)
• from a functional perspective:
  => focus on 3 core elements of market regulation: standard-setting; information gathering and monitoring; behavior-modification

Question 3

3 principal issues of market regulation?

Answer 3

• goal or outcome to be achieved
• standard of conduct required from market participants
• enforcement techniques appropriate to ensure compliance

Question 4

2 roles of law in market regulation?

Answer 4

• instrumental role: law as an instrument for shaping social behavior so as to facilitate transactions in the marketplace (law as a regulatory instrument)
• foundational role: lays down the foundations for peaceful cooperation between strangers rooted in the respect for the rule of law, the shaping and constraining of powers (law as a constraint on market regulation)

Question 5

public vs. private law?

Answer 5

• public law: public authorities-private parties; public interests; distributive justice; public enforcement (by public authorities + ex ante compliance)
• private law: private parties; private interests; interpersonal justice; private enforcement (by aggrieved parties + ex post compensation)

Question 6

constitutional vs. administrative law?

Answer 6

• constitutional law: sets general framework for the relationship between public authorities and their citizens
• administrative law: provides more specific rules that govern the relationship between public authorities and citizens

Question 7

most influential systems of administrative law?

Answer 7

• French approach:
  => administrative law is a body of rules that organizes the government and its public authorities
• US approach:
  => administrative law is a body of law that is concerned with the establishment and operation of public regulatory agencies and that encompasses all the statutes, regulations and judicial decisions that govern them
• German approach:
  => administrative law is a body of rules that protects citizens against the actions of public authorities

Question 8

public interest theory?

Answer 8

claims that government regulation can improve markets, compensating for imperfect competition, unbalanced market operation, missing markets and undesirable market outcomes

Question 9

2 categories of public interest theory?

Answer 9

• economic version
• political version

Question 10

economic version of public interest theory?

Answer 10

• articulates market regulation in terms of economic efficiency
• economic efficiency = markets should maximize wealth for everyone, by allocating resources in the most effective way
• regulation is a response to market failures => correction of market failures increases community’s general welfare and thus is in the public interest; regulation is justified because it does what the market cannot
• different categories of market failures: monopolies and anti-competitive practices; public goods; information deficits and bounded rationality

Question 11

political version of public interest theory?

Answer 11

• the collective welfare should not be defined exclusively in terms of efficient resource use
• the pursuit of other public interests than economic efficiency can also justify regulation

Question 12

2 meanings of paternalism?

Answer 12

• hard (‘strong’) paternalism
• soft (‘weak’) paternalism

Question 13

hard paternalism?

Answer 13

• law forces individuals to avoid certain risks
• individuals are deprived of choice

Question 14

soft paternalism?

Answer 14

• the law, without coercion, nudges individuals away from certain risks towards what is generally considered to be preferable course of conduct
• freedom of choice is preserved

Question 15

law’s role in public interest theories of regulation?

Answer 15

instrumental: law as an instrument for shaping social behavior so as to facilitate transactions in the market (law as a regulatory instrument)

Question 16

regulatory failure?

Answer 16

• regulation might fail to achieve the desired outcomes
• poor performance in discharging the core tasks in regulation
• collective costs of regulation outweigh its benefits

Question 17

regulatory capture?

Answer 17

• an important way in which regulatory failure can happen
• occurs when officials within regulatory institutions who are charged with promoting collective welfare develop such close relationships with regulated entities that they promote their private interests rather than the public interest

Question 18

law’s role in private interest theories of regulation?

Answer 18

• instrumental
• BUT => law is likely to be a means to ends that undermine collective welfare

Question 19

critique of private interest theories of regulation?

Answer 19

• insufficient distinction from public interest theories: assume that regulation should be concerned with the public interest (ex: concept of regulatory capture)
• the enormous weight attached to legislator’s electoral goals: knowing that a legislator seeks security of office does not imply anything specific about how that legislator will behave