Chapter21

Chapter21 - MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall 1 Chapter 21 The

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
1 MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Chapter 21: The Economics of Regulated Industries Objectives: After studying the chapter, you should understand: 1. the various theories proposed to explain government regulation of businesses 2. the forms of government regulation like rate-of- return regulation, price-cap regulation, and franchise bidding 3. the world trend to privatisation and de- regulation
Background image of page 2
3 Theories of Regulation 1. Public Interest Theory (or Consumer Interest Theory) 2. Private Interest Theory (or “Capture” Theory) 3. Regulation as Taxation 4. A General Theory of Regulation
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Public Interest Theory (or Consumer Interest)Theory Arguments for government regulation: Monopoly or natural monopoly Externalities: harmful or beneficial Provision of public good Imperfect information
Background image of page 4
5 Private Interest Theory (or “Capture” Theory) Stigler and Friedland (1962): They formulated an econometric model to test the effect of regulation on electricity prices: Price = f(Population, Fuel, Income, Hydro, Dummy) Price = f(Population, Fuel, Income, Hydro, Dummy) Results: Regulation (the dummy variable) had insignificant effect on the average price of electricity; regulation was more likely to protect commercial and industrial consumers than domestic consumers.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Capture theory of regulation (by Stigler) Government Regulations are designed to protect producers. Why protecting producers? (1) Bureaucrats - they gain from supplying regulations
Background image of page 6
7 (2) Consumers - they are not well informed - they are not well organized A large group size, smaller individual gain, free-rider problem (3) Producers - better organized; benefits are concentrated
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 Stigler's theory of economic regulation (1971) Asymmetrical distribution between gainers and losers from regulations. Larger damage to the majority will become small when spread among them.
Background image of page 8
9 High costs of organising a large group. Members of industries with smaller size have greater incentive to acquire information and there are smaller costs of organising political activities.
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10 Regulation as Taxation (by Posner, 1971 and 1974) the public interest theory is flawed because case studies have shown that government regulation
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/07/2011 for the course PMBA 2963.2 taught by Professor Stephenchiu during the Spring '03 term at HKU.

Page1 / 33

Chapter21 - MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall 1 Chapter 21 The

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online