Tools of Government

Laws & Regulations Government Action via Rules

Laws & Regulation Government Rules prescribe/proscribe specific behavior –“…there ought to be a law against that sort of thing…” –instruct the public what is correct or incorrect –Set societal standards

Laws & Regulation Social Regulation –Categorize behavior: acceptable vs. not acceptable Criminalize unacceptable behavior Prohibitory policy –Define groups Regulated, unregulated Harmed, unharmed

Enforcement Legitimacy affects compliance Enforcement Agents –Capacity to monitor behavior of regulated groups –Sanctions invoked when “line has been crossed” –Use of discretion when situation does not fit the rules Criminal Penalties

Issues Precision vs. flexibility –Discretion Information needs Perverse incentives Sanctions for compliance failure

“Good Things” about Regulation Sets a clear line for acceptable behavior Within the regulated group everyone is treated the same

“Bad Things” about Regulation Inefficient economically –High transaction costs –High information & enforcement costs Within the regulated group everyone is treated the same Perverse incentives

Incentives Governance by Rewards & Sanctions

Incentives Using rewards & sanctions to –Encourage desirable behavior –Discourage undesirable behavior Tax Incentives –Tax breaks –Additional Taxes Subsides Regulatory Protection –Exemptions from certain laws/regulations Licensed monopolies (public service utilities) –Liability limits

Issues Determining the “tipping point” –Target’s cost-benefit neutral point

“Good Things” about Incentives More “economically efficient” than regulation –Should have lower transaction costs Less heavy-handed than regulation –Allows for choice Self-complying (enforcing)

“Bad Things” about Incentives Legitimizes socially unacceptable behavior –Sends mixed signal –Rewards for not doing bad things May allow the wealthy the impose social harms while the less wealthy bear the burden –Pollution taxes Rewards economic inefficiency –subsides May not produce an effective reduction in the problem

Case: Regulating the New Economy

What is the Problem? Threat of a cyber-attack “Gap” in Internet access (broadband services) between rich a poor Government’s capacity to monitor communications traffic of criminals/terrorists Nurturing Internet Commerce Cyber-crime

Questions Given these “problems,” who has a stake in telecommunications policy? –Are all players concerned with all aspects of the policy? How do each of the contending parties framing the problem? How do they attempt to influence government decision-making?

Threat of Cyber-Attack Solutions –Greater collaboration among telecommunications industry Tradeoffs –Weakened anti-trust protections

“Gap” in Internet Access Solution 1 –De-regulate intrastate phone carriers Solution 2 –Government mandate for access (regulate) Solution 3 –Government subsides for access Tradeoff 1 –Monopoly dominance of telecommunications within states Tradeoff 2 –Huge increase in service costs Tradeoff 3 –market distortions & cost of subsides

Government Surveillance Capacity Solutions –Rules requiring government access to accounts –Rules requiring monitoring technologies in hardware –Rules requiring encryption back doors in software Tradeoffs –Privacy –“Big Brother” government

Nurturing Internet Commerce Solution 1 –Leave it alone Solution 2 –Regulate for fraud but do not tax commerce Tradeoff 1 –Cyber-crime –Lost tax revenue Tradeoff 2 –Lost tax revenue