Understanding Regulation: Theory, Strategy, and Practice

By Robert Baldwin; Martin Cave | Go to book overview

2
Why Regulate?

Motives for regulating can be distinguished from technical justifications for regulating. Governments may regulate for a number of motives--for example they may be influenced by the economically powerful and may act in the interests of the regulated industry or they may see a particular regulatory stance as a means to re-election. Different commentators may analyse such motives in different ways and a variety of approaches to such analysis will be discussed in Chapter 3. To begin, though, we should consider the technical justifications for regulating that may be given by a government that is assumed to be acting in pursuit of the public interest.1

Many of the rationales for regulating can be described as instances of 'market failure'. Regulation in such cases is argued to be justified because the uncontrolled market place will, for some reason, fail to produce behaviour or results in accordance with the public interest.2 In some sectors or circumstances there may also be 'market absence'--there may be no effective market--because, for example, households cannot buy clean air or peace and quiet in their localities.


1. Monopolies and Natural Monopolies

Monopoly describes the position in which one seller produces for the entire industry or market. Monopoly pricing and output is likely to occur and be sustained where three factors obtain:3

____________________
1
For detailed reviews of public interest reasons for regulating see S. Breyer, Regulation and Its Reform ( Cambridge, Mass., 1982), ch. 1; A. Ogus, Regulation: Legal Form and Economic Theory ( Oxford, 1994), ch. 3; E. Gellhorn and R. J. Pierce, Regulated Industries ( St Paul, Minn., 1982), ch. 2; J. Kay and J. Vickers, "'Regulatory Reform: An Appraisal'", in G. Majone (ed.), De-Regulation or Re-Regulation? ( London, 1989); B. Mitnick, The Political Economy of Regulation ( New York, 1980), ch. 5; C. Sunstein, After the Rights Revolution ( Cambridge, Mass., 1990), ch. 2; C. Hood, Explaining Economic Policy Reversals (Buckingham, 1995).
2
See also J. Francis, The Politics of Regulation ( Oxford, 1993), ch. 1.
3
See Gellhorn and Pierce, Regulated Industries, 36-7 and Chapter 15 below. On regulating monopolies generally see C. Foster, Privatisation, Public Ownership and the Regulation of Natural Monopoly ( Oxford, 1992), ch. 6; Ogus, Regulation, 30-3; Breyer, Regulation and Its Reform, 15-19; Francis, Politics of Regulation, ch. 3; E. Gellhorn and W. Kovacic, Antitrust Law and Economics ( St Paul, Minn., 1994), chs. 3 and 4.

-9-

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Understanding Regulation: Theory, Strategy, and Practice
Table of contents

Table of contents

  • Title Page iii
  • Acknowledgements v
  • Contents vii
  • Figures ix
  • Tables x
  • Abbreviations xi
  • I- Introduction 1
  • 1- FUNDAMENTALS 7
  • 2: Why Regulate? 9
  • 3: Explaining Regulation 18
  • 4: Regulatory Strategies 34
  • 5: Who Regulates? Institutions and Structures 63
  • 6- What is 'Good' Regulation? 76
  • 7- The Cost-Benefit Testing Of Regulation 86
  • 8: Enforcing Regulation 96
  • 9: Setting Standards 118
  • 10: Self-Regulation 125
  • 11: Regulating Risks 138
  • 12: Regulation in the European Context 150
  • 13: Regulatory Competition and Coordination 180
  • 14: British Utilities Regulation 190
  • II- PARTICULAR CONCERNS 201
  • 15: Price Setting in Natural Monopolies 203
  • 16- Regulation Versus Competition 210
  • 17- Price-Capping Mechanisms 224
  • 18- Measuring Efficiency: Benchmarking, Yardsticking, and Performance 239
  • 19: Regulating Quality 248
  • 20: Franchising and its Limitations 257
  • 21: Accountability 286
  • 22: Procedures and Fairness 314
  • 23- Conclusions 334
  • Bibliography 337
  • Index 359
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