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Slides303-3-Regulation-handout

Slides303-3-Regulation-handout - Business 303 Regulating...

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Business 303 Regulating Business Professor von Nordenflycht Spring 2010 Session 3
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- 2 - Agenda “In the News” Discussion (~15m) Team Composition (~10m) Team Discussion (~65m) break (15m) Lecture: Regulating Business (~50m) Feedback (~5m)
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Content Overview - 3 - Macro Micro Firms Key Issues 1. Economic Systems 2. Regulating Business 3. Political Strategy 4. Ethical Principles 5. Ethics in Business Functions 6. Managing Ethics 7. Corporate Governance & Stakeholders 8. CSR & Sustainability 9. CSR Reporting 10. The Natural Environment 11. Globalization
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Last week: The Takeaway “a great and centuries-long debate: should government regulate business activities and impose restrictions on economic exchanges, or should business firms be left free to pursue their own interests within free markets and trade freely with members of other nations? … over the best mix of government regulation, private property rights, and free markets” (Velasquez, p127 & 157) This week: government regulation of business - 4 -
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Spectrum of Regulation (Sexty)
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6 The Free Market as Efficient and Self-Regulating Invisible Hand: competition among self-interested individuals yields highest aggregate wealth most efficient and most moral? Government interference does more harm than good weaker incentives politicized decisions From Smith to the Chicago School
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Yet, lots of government involvement in capitalist economies, such as Canada: “government in one form or another directly regulates about one third of the economy through more than 600 organizations” (Sexty, 205) Range of forms fiscal & monetary policy “framework” legislation: competition, bankruptcy… protection of consumers, employees, environment “industrial policy” = promotion of particular industries consumption: “expenditures of all governments – federal, provincial, municipal – are about 40 percent of GNP” (Sexty, 202) - 7 -
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Reasons for Government Regulation of Economic Activity Fairness (& Stability): Free markets have acknowledged downsides inequality volatility Efficiency: Free markets don’t always produce efficient outcomes! “market failures” Capture: Powerful interests “capture” government policy to promote their own interests - 8 -
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Conditions for Market Efficiency Perfect competition many sellers w/ similar goods easy entry Full costs and benefits of product reflected in price Buyers and sellers have perfect knowledge (of qualities, actions) Excludability Market Failures Imperfect competition Natural monopoly; oligopoly Externalities Information Asymmetries Adverse selection, moral hazard Public Goods and tragedy of commons - 9 -
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Imperfect Competition (incl. Natural Monopoly)
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