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Regulating Pollution

Regulating Pollution - Regulating Pollution Ariel Singerman...

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Regulating Pollution Ariel Singerman October 28, 2010
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Rationale for regulation Introduce government as active player solving pollution problems 2 basic theories of regulation: 1. Public interest theory Views the purpose of regulation as the promotion of the public interest In this context, 3 general reasons why regulation might exist: I. Imperfect competition II. Imperfect information III. Externalities 2. Interest group theory Views the purpose of regulation as promoting the interests of particular groups in society (e.g.: individual industries)
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Rationale for regulation Public interest theory I.Imperfect competition Government’s role is to prevent concentration of power in markets Multiple competing firms represent the best organizational structure Governments attempts to prevent collusion and restrict mergers Antitrust laws designed to preserve a competitive environment
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Rationale for regulation II. Imperfect information Acquiring information is costly consumers may not always have complete information on things like product quality Due to cost it may even be desirable not to acquire it (cost>benefit) Justification for government to step in: Provision of safety-related quality Acceptable levels of quality
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Rationale for regulation III. Externalities (and provision of public goods and bads) When dealing with provision of public goods ands bads markets are inefficient Government intervenes to try to correct the problem In some cases directly providing the goods at efficient level
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