Week 3 - Regulation Flashcards
What is ‘regulation’?
The control of corporate and commercial activities through a system of norms and rules which may be promulgated either by governmental agencies (including legislatures and courts) or by private actors or a combination of the two.
What are the two different theories behind regulation?
- Public interest theory
* Private interest theory
What is public interest theory?
The idea that the objective of regulation is to promote the general welfare of the community. Can be subdivided into:
- the welfare economics approach and
- political approach
What are the two categories of public interest theory?
- The welfare economics approach
* Political approach
What is the welfare economics approach?
Suggests that regulation is a response to imperfections in the market, known as market failure.
It responds to classic economic theory (supply/demand) that the market is the most efficient way of distributing goods to society.
What are some examples of market failure?
- Anti-competitive monopolies - like cartels
* Public goods - some goods can’t be provided by the market, so they can’t regulate it - e.g. national defence
What is the political approach?
Suggests that values such as social justice and redistribution justify regulation. E.g. Income tax laws, anti-discrimination laws
What is private interest theory?
This whole theory is against regulation. It’s skeptical of the motives of public goals - they think those who regulate have ulterior motives and it’s really serving self-interest. If it happens to also benefit the public, then it’s a coincidence.
It stresses that regulatory failure and regulatory capture can occur.
What is regulatory failure?
When the collective costs of regulation outweighs the benefits
What is regulatory capture?
When officials who are supposed to be regulating something (and representing the wider community) end up promoting it (the narrow interests of the group). E.g. Centrelink
What is the ACCC and what do they do?
The Australian Competition and Consumer Commission. It protects consumers and competition in Australia, e.g stopping cartels. It says it makes markets work for consumers.
What is the ASIC and what do they do?
The Australian Securities and Investments Commission.
