It Is Political Pressure From Producer Groups, Rather Than Consideration Of Market Failure, That Explains Governmental Reliance On Regulation. Discuss... Regulation is a state-imposed limitation on the discretion that may be exercised by individuals or organisations, which is supported by the threat of sanctions. i It is common knowledge that politicians have an incentive to get re-elected and to maintain power and control. So, while the Government likes taxation and depending on ideology, nationalisation. It must consider the backlash of its decision, concerning the welfare of all parties concerned.
Taxation tends to affect the welfare of both consumers and producers. Regulation on the other hand still allows for the allocative and productive efficiency of any firm is co-determined by market forces and administrative processes. It does not really constrain firm pricing behaviour. It is in some ways "the lesser of two evils" and may be an advantage for firms. Why? Regulated firms report improved internal efficiency, lower prices, a wider range of services, and increased profitability. ii The answer lies in the fact that regulation may enable a firm to yield economic rent.
Economic rent is 'wage' for some fixed resource, which is necessary for, and valuable in a transaction but in monopolistic possession of some trader. iii Firms may earn economic rent since price is set above marginal cost and it becomes impermissible to expand output even though they are not in short-run equilibrium. The process works to their advantage, curbing the otherwise competitive situation. iv (See fig. 1) Fig. 1. (Below) At output qi?? with N number of firms, pi?? is above mc and each firm earns economic rent. Such profits will lure entrants. However, with regulation capping output, the state will have to stop entrants.
This enables firms to behave as cartels. v Its administration on the other hand, costs the government millions. Why not let the "invisible hand" do it for free? (! ) According to Dunleavy, the red tape involved allows for an "open ended budget" that throws efficiency out the window and instead empowers authorities. How? The economic rent the existing firms enjoy undoubtedly would attract newcomers. Unfortunately, if the regulation in place aims to cap output, it would make sense that no other firms are allowed in! In other words, there is a kind of entry barrier and entry barriers (? ) - limit competition!
Various theories and models are used to explain the question of why we need regulation. These include the "public interest" or "normative analysis" theory and several versions proposed either by political scientists or by economists, and the "interest group" or "capture" theory, also with several models. (Stigler 1971, Peltzman 1974 and Becker 1983) The "public interest" states that regulation occurs when it should occur because the potential for net social welfare gain generates public demand for regulation. It is based on two common circumstances. (a) Market imperfections resulting in monopoly.
Although markets promote competition, it is inevitable that the opportunity for a firm / firms to monopolise the market will arise allowing firms to set price way above marginal cost. And, an industry may be plagued with (b) Externalities. These are costs or benefits of a transaction that are incurred or received by other members of the society but not taken into account by the parties to the transactionvi. [According to Ronald Coase (1960), they arise because of the lack of property rights. With these, regulation would not be necessary, as bargaining or negotiation will deliver a unique optimum. ]
Site: https://lawaspect.com/walmart-smart-inventory-system/
Taxation tends to affect the welfare of both consumers and producers. Regulation on the other hand still allows for the allocative and productive efficiency of any firm is co-determined by market forces and administrative processes. It does not really constrain firm pricing behaviour. It is in some ways "the lesser of two evils" and may be an advantage for firms. Why? Regulated firms report improved internal efficiency, lower prices, a wider range of services, and increased profitability. ii The answer lies in the fact that regulation may enable a firm to yield economic rent.
Economic rent is 'wage' for some fixed resource, which is necessary for, and valuable in a transaction but in monopolistic possession of some trader. iii Firms may earn economic rent since price is set above marginal cost and it becomes impermissible to expand output even though they are not in short-run equilibrium. The process works to their advantage, curbing the otherwise competitive situation. iv (See fig. 1) Fig. 1. (Below) At output qi?? with N number of firms, pi?? is above mc and each firm earns economic rent. Such profits will lure entrants. However, with regulation capping output, the state will have to stop entrants.
This enables firms to behave as cartels. v Its administration on the other hand, costs the government millions. Why not let the "invisible hand" do it for free? (! ) According to Dunleavy, the red tape involved allows for an "open ended budget" that throws efficiency out the window and instead empowers authorities. How? The economic rent the existing firms enjoy undoubtedly would attract newcomers. Unfortunately, if the regulation in place aims to cap output, it would make sense that no other firms are allowed in! In other words, there is a kind of entry barrier and entry barriers (? ) - limit competition!
Various theories and models are used to explain the question of why we need regulation. These include the "public interest" or "normative analysis" theory and several versions proposed either by political scientists or by economists, and the "interest group" or "capture" theory, also with several models. (Stigler 1971, Peltzman 1974 and Becker 1983) The "public interest" states that regulation occurs when it should occur because the potential for net social welfare gain generates public demand for regulation. It is based on two common circumstances. (a) Market imperfections resulting in monopoly.
Although markets promote competition, it is inevitable that the opportunity for a firm / firms to monopolise the market will arise allowing firms to set price way above marginal cost. And, an industry may be plagued with (b) Externalities. These are costs or benefits of a transaction that are incurred or received by other members of the society but not taken into account by the parties to the transactionvi. [According to Ronald Coase (1960), they arise because of the lack of property rights. With these, regulation would not be necessary, as bargaining or negotiation will deliver a unique optimum. ]
Site: https://lawaspect.com/walmart-smart-inventory-system/
Comments
Post a Comment