1. Class 10 Class 10 Regulation policy March 19 St-Petersburg State University Graduate School of Management Master of International Business Program Business-government relations

2. ??? Discussion questions The firm and regulatory environment. different types of regulation. Why regulate? Economic theory of regulation. Rationales for regulating. Regulatory strategies and instruments. Who regulates? Challenges of regulation in 21 century

3. Regulation Macroeconomic regulation (fiscal, monetary policy, social, trade policy) Legislation (law-general regulation, discretional regulation) The Firm Direct or indirect impact

4. Regulation –Rules administered by a government agency to influence economic activity by determining prices, product standards and types, and the conditions under which new firms can enter an industry. –A form of secondary legislation which is used to implement a primary piece of legislation appropriately, or to take into account of particular circumstances or factors emerging during the gradual implementation of, or during the period of, a primary piece of legislation.

5. Why regulate? A.“Public interest” explanations 1. Legislative declaration 2. Market failure B.“Private interest” explanations 1. Regulation sought by the regulated. 2. Regulation sought by other interest groups

6. Economic theories of regulation Two broad economic theories of regulation are: Public Interest Theory –The public interest theory is that regulation seeks an efficient use of resources. Capture Theory –Capture theory is that regulation helps producers to maximize economic profit.

7. Why regulate? Rationales for regulating  Monopolies and natural monopolies  Externalities  Information inadequacies  Continuity and availability of service  Anti-competitive and behaviour predatory pricing

8. Regulation: set of interventions  Controlling prices  Setting price floors  Ensuring equal opportunities  Regulating employment practices  Specifying qualifications  Providing for solvency  Controlling the number of market participants  Limiting ownership

9. Regulation: set of interventions (cont)  Requiring premarketing approval  Ensuring product safety  Mandating product characteristics and technology  Establishing performance standards  Controlling toxic emissions and other pollutants  Specifying industry boundaries  Allocating public resources  Rationing common pool resources  …

10. Why regulate? Rationales for regulating.  Public goods  Unequal bargaining power  Scarcity and rationing  Distribution justice and social policy  Rationalization and coordination  Planning

11. Regulatory strategies  Command and control  Self-regulation  Incentives  Market-harnessing controls  Competition laws  Franchising  Contracting  Tradable permits

12. Regulatory strategies  Disclosure  Direct action  Rights and liabilities laws  Public compensation / social insurance

13. Who regulates?  Self-regulators  Local authorities  Parliament  Courts and tribunals  Central government departments  Agencies  Directors general

14. Challenges for modern regulation policies Over the past decades: The structure of modern industrial economies has changed Development of new industries and areas of business Deregulation process (fighting red tape and lowering administrative barriers) Privatization Globalization