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1423class17 - 14.23 Government Regulation of Industry Class...

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14.23 Government Regulation ± of Industry± Class 17: Introduction to Social Regulation 1
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Outline • Introduction to Social Regulation • The value of risk • Overview of last section of course • Externalities • Potential Remedies • Coase Theorem • Public Goods 2
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Background to Social Regulation± • Motivation for regulation is the correction of market failure. When we discuss social regulation, we will mean regulation of health, safety, and the environment and public goods such as intellectual property. • Unlike economic regulation, there has been NO de-regulation. Much social regulation that really didn’t exist in the US before the 1970s. Social regulation is more difficult than economic regulation in some sense because it’s more difficult to determine the costs and benefits of those regulations. • What is in society’s best interest may be more difficult to measure 3 (eg. seatbelt laws, disclosure rules, etc.).
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Basic Motivation Much social regulation is really about reducing accidents that lead to bad outcomes, e.g. this can be requiring seatbelts to reduce fatalities from car accidents, pollution reduction (both for criteria pollutants and toxics), workplace hazards, nutritional labelling. NOTE: you cannot actually ELIMINATE risk – many of the risks that exist can be extremely small and extremely costly to eliminate completely. NOTE: Concern for social aspects - quality of life - of production increases with income (post-materialism highly income elastic). As we get wealthier, we will demand more safety against risks that lead to reduced health status. 4
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• Regulatory agency powers are determined by the legislature. • For agencies regulating social outcomes, powers are restricted. For example, the Environmental Protection Agency (EPA) and Occupational Health and Safety Administration (OSHA), are EXPLICITLY not allowed to base what they do on a cost-benefit analysis. Why? • However in the US the executive branch does provide oversight: _ Ford administration required that the cost and inflationary impact of regulations be assessed. _ Carter administration said that cost effectiveness of regulation also required. – OMB requires cost-benefit analysis to be done EVEN if it
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This note was uploaded on 11/18/2011 for the course ECON 14.23 taught by Professor Daronacemoglu during the Fall '09 term at MIT.

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1423class17 - 14.23 Government Regulation of Industry Class...

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