Economic Approaches to Regulation
16
Economic Approaches to Regulation Page 1 of 16 PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a title in Oxford Handbooks Online for personal use (for details see Privacy Policy ). Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015 Print Publication Date: Sep 2010 Subject: Business and Management, Government and Law, Finance and Economics Online Publication Date: Sep 2010 DOI: 10.1093/oxfordhb/9780199560219.003.0002 Economic Approaches to Regulation Cento Veljanovski The Oxford Handbook of Regulation Edited by Robert Baldwin, Martin Cave, and Martin Lodge Oxford Handbooks Online Abstract and Keywords Economics has been at the heart of regulatory reform beginning with the wave of deregulation and privatisations of the 1980s. This article focuses on economic theories of regulation, and the way economics has been used to design and evaluate regulation. As the title of this article suggests, there are a number of economic approaches. However, these all share the conviction that relatively simple economic theory can assist in understanding regulation, and providing practical tools for regulators to make regulation more effective and efficient. The subject matter of the economics of regulation covers at least four broad areas — economic regulation, social regulation, competition law, and the legal system. Here a broader view is taken encompassing competition and merger laws, and the field known as law-and-economics or the economics of law is illustrated which looks at the legal system. Keywords: economics, regulatory reform, deregulation, privatisations, competition law, legal system 2.1 Introduction Economics has been at the heart of regulatory reform beginning with the wave of deregulation and privatisations of the 1980s. While not always at the forefront of these changes, economists have played a key role in these developments, and have often become regulators. This has led to better regulation and, paradoxically, more regulation, fuelling fears that the growth of the state, even if a regulatory state, is inevitable even in ‘capitalist’ democracies. Part of this trend has been due to the replacement of state ownership with private ownership plus regulation, part due to the natural tendency for ‘regulatory creep’, and the apparent inability of government to roll back regulation. The economics of regulation is a wide and diverse subject. It has normative (what should be) and positive (what is) aspects; provides economic analyses of prices, access, quality, entry, access, and market structure (regulatory economics), empirical studies of specific legislation (impact and cost‐benefit assessments), and organisational and legal applications which examine the behaviour of institutions and regulatory agencies, and the development and design of rules, standards, and enforcement procedures. It is not possible to do justice to such a vast subject in a (p. 18) short review; hence the focus here will be on economic theories of regulation, and the way economics has been used to design and evaluate regulation. As the title suggests there are a number of economic approaches. However, these all share the conviction that relatively simple economic theory can assist in understanding regulation, and providing practical tools for regulators to make regulation more effective and efficient. This premise gives coherence to the different economic approaches even though they may generate very different views and theories about the rationale and (likely) impact of specific regulatory interventions.
-
Upload
diego-alonso-collantes -
Category
Documents
-
view
6 -
download
3
description
Aproxiomaciones económicas a la regulación
Transcript of Economic Approaches to Regulation
-
Economic Approaches to Regulation
Page 1 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
PrintPublicationDate: Sep2010 Subject: BusinessandManagement,GovernmentandLaw,FinanceandEconomics
OnlinePublicationDate: Sep2010
DOI: 10.1093/oxfordhb/9780199560219.003.0002
EconomicApproachestoRegulation CentoVeljanovskiTheOxfordHandbookofRegulationEditedbyRobertBaldwin,MartinCave,andMartinLodge
OxfordHandbooksOnline
AbstractandKeywords
Economicshasbeenattheheartofregulatoryreformbeginningwiththewaveofderegulationandprivatisationsofthe1980s.Thisarticlefocusesoneconomictheoriesofregulation,andthewayeconomicshasbeenusedtodesignandevaluateregulation.Asthetitleofthisarticlesuggests,thereareanumberofeconomicapproaches.However,theseallsharetheconvictionthatrelativelysimpleeconomictheorycanassistinunderstandingregulation,andprovidingpracticaltoolsforregulatorstomakeregulationmoreeffectiveandefficient.Thesubjectmatteroftheeconomicsofregulationcoversatleastfourbroadareaseconomicregulation,socialregulation,competitionlaw,andthelegalsystem.Hereabroaderviewistakenencompassingcompetitionandmergerlaws,andthefieldknownaslaw-and-economicsortheeconomicsoflawisillustratedwhichlooksatthelegalsystem.Keywords:economics,regulatoryreform,deregulation,privatisations,competitionlaw,legalsystem
2.1IntroductionEconomicshasbeenattheheartofregulatoryreformbeginningwiththewaveofderegulationandprivatisationsofthe1980s.Whilenotalwaysattheforefrontofthesechanges,economistshaveplayedakeyroleinthesedevelopments,andhaveoftenbecomeregulators.Thishasledtobetterregulationand,paradoxically,moreregulation,fuellingfearsthatthegrowthofthestate,evenifaregulatorystate,isinevitableevenincapitalistdemocracies.Partofthistrendhasbeenduetothereplacementofstateownershipwithprivateownershipplusregulation,partduetothenaturaltendencyforregulatorycreep,andtheapparentinabilityofgovernmenttorollbackregulation.
Theeconomicsofregulationisawideanddiversesubject.Ithasnormative(whatshouldbe)andpositive(whatis)aspects;provideseconomicanalysesofprices,access,quality,entry,access,andmarketstructure(regulatoryeconomics),empiricalstudiesofspecificlegislation(impactandcostbenefitassessments),andorganisationalandlegalapplicationswhichexaminethebehaviourofinstitutionsandregulatoryagencies,andthedevelopmentanddesignofrules,standards,andenforcementprocedures.Itisnotpossibletodojusticetosuchavastsubjectina(p.18) shortreview;hencethefocusherewillbeoneconomictheoriesofregulation,andthewayeconomicshasbeenusedtodesignandevaluateregulation.
Asthetitlesuggeststhereareanumberofeconomicapproaches.However,theseallsharetheconvictionthatrelativelysimpleeconomictheorycanassistinunderstandingregulation,andprovidingpracticaltoolsforregulatorstomakeregulationmoreeffectiveandefficient.Thispremisegivescoherencetothedifferenteconomicapproacheseventhoughtheymaygenerateverydifferentviewsandtheoriesabouttherationaleand(likely)impactofspecificregulatoryinterventions.
-
Economic Approaches to Regulation
Page 2 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
Thesubjectmatteroftheeconomicsofregulationcoversatleastfourbroadareaseconomicregulation,socialregulation,competitionlaw,andthelegalsystem.IndeedtheexcellenttextbookbyViscusi,Harrington,andVernon(2005)entitledEconomicsofRegulationandAntitrust,encompassesthefirstthreeareas,althoughmanywouldseeantitrust(tousetheUSAterm)asseparate. Hereabroaderviewistakenencompassingcompetitionandmergerlaws,andthefieldknownaslawandeconomicsortheeconomicsoflawwhichlooksatthelegalsystem(Veljanovski,2006and2007).
Economicregulation:Economicsisatitsstrongestandmostrelevantwhenitdealswithovertlyeconomicissuesaffectingfirmperformance,industrystructure,pricing,investment,outputandsoon.Indeed,aseparatefieldofstudyknownasregulatoryeconomics,startingeffectivelywithAverchandJohnson(1962),anarticleonthedistortiveeffectsofrateofreturnregulation,isconcernedwiththeprinciplesandtechniquesforregulatingautility,usuallyagas,electricity,water,telephone,andrailwaynetwork,whichdoesnotfaceeffectivecompetition(Viscusi,Harrington,andVernon,2005;Armstrong,Cowan,andVickers,1994;LaffontandTirole,1993).Socialregulation:Economistshavealwaysbeenconcernedaboutsocialregulationasubjectasoldaseconomicsitself,arisingaroundthetimeoftheindustrialrevolution.Socialregulationembraceshealthandsafety,environmental,antidiscriminationandotherlaws.Thiscategoryofregulationdoesnothaveoverteconomicobjectivesbutdoeshaveeconomiceffects,costs,andbenefits.Thesealloweconomiststoevaluatetheeconomicimpactanddesirabilityofspecificapproachestosocialregulation.Competitionandmergerlaws:Theseseektocontrolmonopolies,cartels,andabusivepractices,andmergersandjointventureswhichriskgivingfirmsexcessivemarketpower(Motta,2004;O'DonoghueandPadilla,2006).ThecorelegalframeworkofEuropeancompetitionlawisexpressedinArticles81,82,and87oftheECTreatyandtheMergerRegulation. Competitionlawseekstosupportthemarketanddiffersfromtheexanterulesandstandardswhichcharacterisemuchofeconomicandsocialregulationbybeingreactive,orasitisoftentermedexpostregulation.Thisisbecauseitrespondscasebycasetoactualorhighlylikelyabuses,andpenalisesanticompetitiveandabusivepractices.Theexceptionismergerlawswhichseektopreventfirmsfrommergingandformingjointventureswherethiswouldgivethemexcessivemarketpower.(p.19)However,generallyexpostcompetitionlawstandsincontrasttostatutoryregulationwhichistypicallyaprescriptiveexanteapproach.Legalsystem:Thefinalareaisthelegalsystemwithitsrules,procedures,andenforcement.Thisprovidesanimportantbackdroptoregulatoryandcompetitionlaws,andcanoftendeterminetheireffectivenessandlegitimacy.Economiststypicallydealwiththisareainaseparatefieldcalledlawandeconomicswhichlooksattheeconomicsofcontract,property,crime,andaccidentlaws,andthebasiclegalinstitutionsofasociety(Veljanovski,2006and2008).Muchofthisliteratureishighlyrelevanttotheeconomicsofregulation,suchastheeconomicsofcrimewhichoffersmodelsandpredictionsabouttherelativeeffectivenessofdifferentsanctionsinenforcingregulatorylaws,theeconomicsofrulesandprocedureswhichprovidesinsightintothefactorsinfluencingtheireffectiveness,andtheeconomicsofagencyandjudicialbehaviour.
2.2TheoriesofRegulationWhenlookingatthelargeliteratureontheeconomicsofregulationitisimportanttomakeadistinctionbetweennormativeandpositivetheories.Normativetheoriesseektoestablishidealregulationfromaneconomicperspective,andareprescriptive.Theyareusuallybasedontheconceptsofeconomicefficiencyandmarketfailure,andprovideaneconomicversionofapublicinteresttheoryofregulation.Positiveeconomicsistheexplanatoryandempiricallimboftheeconomicsofregulation.Itseekstoexplainthenatureanddevelopmentofregulationanditsimpactthroughstatisticalanalysis,andsometimescostbenefitassessments.
2.2.1NormativeeconomicapproachesNormativetheoriesofregulationprincipallybuildontheconceptsofeconomicefficiencyandmarketfailure,althoughmorerecentlytherehasbeenawidespreadrecognitionthatitismisleadingandcounterproductivetofocussolelyonmarketfailure,sincegovernmentsarejustaspronetofailure.Onetroublesomeareaforthesetheoriesistherelationshipbetweenefficiency,distributivejustice,andregulationwhichwillbetouchedonbriefly.
1
2
-
Economic Approaches to Regulation
Page 3 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
EfficiencyThebuildingblocksoftheeconomicapproacharetheconceptsofeconomicefficiencyand,paradoxically,ofmarkets.
(p.20) Anefficientoutcomeoccurswhenresources,goods,andservicesareallocatedtotheirhighestexpected valuedusesasmeasuredbyindividualwillingnesstopay,assumingthatthemostproductiveexistingtechnologyisused.Whenthereistechnicalchangewhichexpandstheproductivecapacityoftheeconomyforanygivenlevelofinputstheneconomistsusetheconceptofdynamicefficiency.Theconceptofdynamicefficiencyisalesswellworkedoutconceptbecausetheprocessoftechnicalchangeandinnovationisstillpoorlyunderstood.
EconomistsworkwithtwoconceptsofeconomicefficiencyParetoefficiencyandKaldorHicksefficiency.
AParetoefficientoutcomeiswherethewelfareofoneindividualcannotbeimprovedwithoutreducingthewelfareofothers.ThusParetoefficiencyisasituationwhereallpartiesbenefit,ornoneareharmed,byareallocationofresources,goods,assets,orachangeinthelaw.Thenooneisharmedconstraintavoidstheeconomistmakinginterpersonalcomparisonsofutility,i.e.evaluatingwhetherthelosstooneindividualiscounterbalancedbythegaintoothers.
ThisParetocriterion,namedaftertheSwissItalianeconomistVilfredoPareto,isbasedontwoadditionalvaluejudgements:
(1)thattheindividualisthebestjudgeofhisorherownwelfare;(2)thewelfareofsocietydependsonthewelfareoftheindividualsthatcompriseit.
These,itisargued,shouldbewidelyaccepted,atleastamongthoseinWesternsociety.
ThedifficultywithPareto'snooneisharmedconstraintisthatitprecludestheeconomistfromcommentingonallbutthemosttrivialpolicychangesincemostpolicieshavewinnersandlosers.Theonlyconsistentwayoutofthisdilemmaistoinsistonthegainerscompensatingthelosersassomepublicchoiceeconomistshaveadvocated(BuchananandTullock,1962).
Todealwith(orrathersidestep)thisdifficulty,economistshaveadoptedKaldorHicksefficiencyalsoknowaswealthmaximisationorallocativeefficiency.ApolicyisKaldorHicksefficientifthosethatgaincaninprinciplecompensatethosethathavebeenharmedandstillbebetteroff.Inotherwords,thecostbenefittestissatisfiedshowsthattheeconomicgainsexceedthelossestowhomsoevertheyaccrue.InthiswayeconomistsbelievethattheKaldorHicksapproachseparatesefficiencyfromthethornyandindeterminateissueofwealthdistribution.
MarketfailureThesecondlimbofthestandardnormativetheoryofregulationistheconceptofmarketfailure(Bator,1958).A(perfectly)competitivemarketachievesaParetoefficientoutcome.Marketfailureprovidesanecessary(butnotsufficient)economicjustificationforstateorcollectiveintervention.
Marketscanfailintheoryandpracticeforfourprincipalreasonsmarketpower,externality,publicgoods,andimperfectinformation.
(p.21)
Marketpower:Whereonefirm(monopoly)orafewfirms(oligopolyoracartel)canprofitablyraisepriceabovethecompetitivelevel,thenthemarketisnotcompetitiveorParetoefficient.Amonopolistchargesmoreandproduceslessthanacompetitiveindustry.Asaresultthepriceitchargesexceedsthemarginalopportunitycostsofproduction,andconsumersdemandlessoftheproductthanisefficient.Thesocialcostsofmonopolyarethelostconsumers'surplus(thedifferencebetweenwillingnesstopayandthemarginalcosts)ontheoutputnotproducedbythemonopolist'sactionofcreatingartificialscarcity.Monopolycanalsoadverselyaffecttheothertermsoftrade(suchaslowerproductandservicequality),reduceinnovation,leadtoexcessiveproductioncosts(knownasXinefficiency),andencouragewastefulexpendituretoenhanceorprotectitsmonopolypositionbyunproductiverentseeking(seebelow).Ontheotherhand,itispossiblethat
3
-
Economic Approaches to Regulation
Page 4 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
onefirm(anaturalmonopoly)canexistduetothehighinfrastructurecostsnecessarytobuild,say,awaterpipelineorelectricitydistributionnetwork,orfirmsmayacquiremarketpowerbecausetheygeneratemoreinnovation(Schumpeter,1947;Baumol,2002).Externality:Someactivitiesimposeexternallossesorbenefitsonthirdpartieswhichthemarketdoesnottakeintoaccount.Externalitiescanimposelosses(suchaspollution)orbenefits(suchasbeespollinatingorchards).Thepresenceofexternalbenefitsandcostsimpliesthattheactivitygivingrisetothemisunderandoverexpandedrespectivelyrelativetotheefficientlevel.Thisisbecausethecoststructureoftheexternalitycreatingindustrydoesnotreflectthefullsocialcosts/benefitsofitsactivities.Pollution,congestion,globalwarming,litter,antisocialbehaviour,andcrimeareexampleswherethesocialcostsarehigherthantheprivatecostswhichinfluenceindividualactions.Publicgoods:Apublicgoodisoneforwhichconsumptionofthegoodbyoneindividualdoesnotdetractfromthatofanyotherindividual,i.e.thereisnonrivalrousconsumption.Theclassicexampleisdefenceastandingarmyprovidesnationaldefenceforallitscitizens.Publicgoodsshouldnotbeconfusedwithcollectivelyorstateprovidedorproducedgoodsandservices.Acompetitivemarketmayfailtoprovideanefficientlevelofapublicgoodbecausenonpayerscannotbeexcludedresultinginfreeridingandpreferencemisrevelation,andtheinabilitytoappropriateanadequatereturn.Becauseindividualscannotbeexcludedfromconsumingapublicgood,thosewithhighvaluationswilltendtounderstatetheirpreferencesinthehopeofbeingchargedalowerpriceandotherswillfreeride.Moreover,sinceafirmcannotexcludenonpayingcustomers,theseproblemsmaysufficientlyimpairtheabilitytoextractanypaymentthatnoortoofewpublicgoodsareproduced.Asymmetricinformation:Imperfectinformationcanresultininefficientmarketoutcomesandchoices.Further,marketsmayunderproducerelevantinformationbecauseinformation'spublicgoodsnaturecanmakeitdifficultforthose(p.22) investinginbetterandnewinformationtoappropriateanadequatefinancialreturn.Inothercasesmarketsmayfailbecauseofasymmetricinformationwherethebuyerorsellerhasbetterinformation(Akerlof,1970).Asymmetricinformationgivesrisetotwoproblemsadverseselectionandmoralhazard.Adverseselectioniswhereonepartycannotdistinguishbetweentwoormorecategoriesofgoods,actions,oroutcomeswhichhavedifferentcosts,benefits,orrisks,andthereforemakesachoicebasedontheaveragevalueofthese.Forexample,ifaninsurancecompanycannotdistinguishgoodfrombadrisks,itwillchargebothapremiumbasedontheaverageriskofthepool.Asaresultbadrisksgetcheapinsuranceandgoodrisksexpensiveinsurance.Thelossesofthepoolriseasgoodrisksdon'tinsurewhilebadrisksdobecausethepremiumsarecheap.Moralhazardisasituationwheretheprospectofcompensationtocoverrisksandlossesincreasesthelikelihoodandsizeofthelossesbecauseriskybehaviourcannotbemonitoredandpricedappropriately,andexcessivelossesarecompensated.Thisconceptreceivedaconsiderableairinginthe2008/9bankingcrisis.
NonmarketfailureTheimplicitassumptionofthemarketfailuresapproachisthatregulatoryinterventioniscostless,andofcoursethatithasorshouldhaveeconomicefficiencyasitssoleobjective.Inpracticeregulationiscostlyandgeneratesitsowndistortionsandinefficiencies.Coase(1960)pointedtothisobviousflawinahighlyinfluentialarticleandadvocatedthattherelevantcomparisonwasnotbetweenidealmarketsandidealregulationbutbetweenfeasible,imperfect,andcostlymarketsandregulation.Thissetthesceneforagovernmentfailuresframework(Wolf,1988),orwhatDemsetz(1969)calledthecomparativeinstitutionsapproachwhichlaterdevelopedintothetransactionscostsandtheNewInstitutionalEconomicsapproach(Williamson,1985;ShelanskiandKlein,1995).
Thereareotherimplicationsfromtheaboveinsightthatmarketsandregulationarecostly.Thefirstisthateconomistsandothershaveexaggeratedtheincidenceandtheextentofmarketfailure.Oftenmarketsonlyseemtofailbecausetheeconomists'models(orthestandardsetbynoneconomists)ignoredthecostsofusingthemarketandtheexpenseofproposedremedialmeasures.Forexample,ithasbeenshownthatmanyoftheexamplesusedtoillustratemarketfailureineconomicstextbooksandinfluentialarticleshavebeenverywideofthemark.
Take,forexample,theallocationofradiomagneticspectrum.Thiswasseenasaclassicexampleofmarketfailurewheretheprivateuseofthespectrumledtocongestionandradiointerference(marketfailureduetoexternalities).Fromthe1920suntilveryrecentlyitwasfirmlybelievedthatamarketinspectrumwasnotpossible,asitgaverise
4
-
Economic Approaches to Regulation
Page 5 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
toinefficientusesandradiointerference.Thustheamountanduseofspectrumhadtoberationedandstrictlyregulated.Today,thereisanappreciationthatthereasonwhyearlymarketsinspectrumfailedwasbecauseoftheabsenceofenforceablepropertyrights,whichledtoincompatibleusesofthesamebandwidth(p.23) (Herzel,1951;Coase,1959).Researchhasshownthatnotonlycouldtherebeamarketinspectrumbutthatthelawwasevolvingtodevelopaquasipropertyrightssystemthroughthecommonlawofnuisanceandtrespass(Coase,1959).However,mostcountriesnationalisedtheairwavesandallocatedbandwidthbyadministrativemeans,oftentohighlyinefficientgovernmentandmilitaryuses.
Themarketfailuresapproachalsodidnotrecognisethatoftenthecostsofusingthemarketgeneratedselfcorrectiveforces.Asaresultafalsedichotomywasdrawnbetweenmarketandnonmarketactivities.However,manyseeminglynonmarketinstitutionsevolvedasacosteffectiveresponsetothecostsofusingthemarket.ThiswastheessentialandstilloftenignoredinsightofCoase,whoarguedthatthepositivetransactionscostsofmarketscouldhelpexplainotherwisepuzzlingeconomicandinstitutionalfeaturesoftheeconomy.Thethesisadvocatedbythisliteratureisthatthelawsandinstitutionsevolvewheretheyarealesscostlywayoforganisingeconomicactivity.Indeed,thisexplainstheexistenceofthefirmafirmisseenasanexusofcontractsandnonmarkethierarchal/administrativemethodsoforganisingproductionwhichreplacesarms'lengthmarkettransactions(Coase,1937;Williamson,1985).Thefirmtherebyreplacesmarkettransactionscostswiththeprincipal/agencycostsofinternaladministrativecontrols.Thislogichasbeenextendedtoregulationwhichsomeeconomistsanalyseincontractualandtransactionscoststerms(seebelow).
Distributivegoals,fairness,andjusticeFinally,abriefwordaboutwealthdistribution,fairness,andjustice.Marketsandregulationgeneratewinnersandlosers.Itfollowsthatindividualsasmarketparticipantsandascitizenswilloftenbeequallyifnotmoreconcernedbywhetherlawsincreasetheirwealththanbytheirimpactonothersorsocietyingeneral.Moreover,therewilloftenbeviewsaboutthefairnessandacceptabilityofmarketandregulatoryoutcomes.Thusitwouldbesurprisingiftheeconomicsofregulation,especiallyinitsguiseofanormativetheory,wasabletoignorethesenoneconomicfactors.
Thereisalsoatechnicalreasonwhydistributionalissuescannotbeignored.Thisisbecauseanefficientmarketoutcomeispartiallydeterminedbytheexantedistributionofincomeandwealthinsociety.Thismeansthatthereisaninextricablelinkbetweenwealthdistributionandeconomicefficiencyandmarketoutcomesandbyimplicationregulation.Asaresultitislegitimateinthenormativetheorytoconsiderdistributionalfactors,andindeedthereisavasteconomicliteratureinwelfareeconomics,socialchoicetheory,publicfinance,taxation,andsocialwelfareissueswhichfocusonsuchissues.
However,intheevaluationofregulationeconomistsadoptadecidedlyschizophrenicapproach.Ontheonehandregulationisassessedintermsofeconomicefficiencyalone,ontheimplicitassumptionthatdistributionalgoalscanbeachievedatlesscostbydirect,ideallylumpsum,wealthtransfers.Onthe(p.24) otherhand,theeconomists'positivetheoriesofregulation,discussedbelow,aredrivenbypoliticiansandinterestgroupsjostlingprimarilyoverwealthtransfers.
Thereasonfortheeconomists'reluctancetoincorporatedistributionalconsiderationsiseasytoexplain.Mosteconomistsviewtheuseofregulationtoredistributeincomeasabluntandinefficientinstrument.Itdistortspricesandincentives,andhenceleadstosubstantialefficiencylossesandunintendedeffectswhichoftenharmthosewhomitisdesignedtobenefit(seebelow).Forexample,thepublicinterestgoalofrentcontrolistomakeaffordablehousingavailabletothepoor.Butitseffecthasbeentoreducesubstantiallytheavailabilityofhousingaslandlordswithdrewpropertiesandinvestedtheirmonieselsewhere.Apartfromcreatingahousingshortage,thoseluckyenoughtosecurerentalaccommodationoftenfindthatitissubstandardasthelandlordisunwillingtoinvestinimprovementsandmaintenance.Thelessonwhichmostgovernmentshavenowlearntisthatpricecontrolsdrivenbydistributionalgoalshavesignificantnegativeeffectsandrarelyachievethedesiredredistributionofincomeandwealth.Theeconomists'adviceisthatsuchpoliciesshouldbepursuedbyothermoreefficientmeanssuchasincomesupportpaymentsetc.,thatdonotdistorttheefficiencyfunctionofprices.
2.3PositiveTheories
-
Economic Approaches to Regulation
Page 6 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
Positiveeconomictheoriesseektoexplainregulationasitis.Thecentraltasksofthetheoryofeconomicregulationtoquoteoneofitsfounders(Stigler,1971:3),aretoexplainwhowillreceivethebenefitsorburdensofregulation,whatformregulationwilltake,andtheeffectsofregulationupontheallocationofresources.Thishasledtotheorieswhichseektoexplainwhywehavetheregulationwehave.
Economistshaveusedthemarketfailureapproachtoexplainregulation.ThisissometimescalledtheNormativeTurnedPositive(NTP)theoryofregulation.
TheNTPtheoryassumes(oftenimplicitly)thatgovernmentsseektocorrectmarkets,andtodosofairlyefficiently.Forexample,onesurveybytworespectedBritisheconomists(KayandVickers,1988)inthelate1980sconcludedthat:Thenormalpatternisthatmarketfailureprovidestherationalefortheintroductionofregulation,butthescopeofregulationisthenextendedtoawiderangeofmatterswhicharethesubjectofgeneralorsectionalinterests,regardlessofwhetherthereisanyelementofmarketfailureornot.Whilethispatternwasdiscernible,therewasclearlyalotofregulationthathadlittletodowithcorrectingmarketfailure.Indeed,intheUStherewasmuchtalkofcrisisasregulatorswerecapturedandfavouredbytheindustrytheyregulated.Thatisthattheypromotedproducerinterestsratherthantheconsumers'interests.
(p.25) ThegrowingevidenceofregulatorycaptureintheUSAledsomeeconomiststoincorporatethepoliticalprocessintotheiranalysis.Atthecoreofthesepositivetheoriesistheassumptionthattheparticipantsintheregulatoryprocesspoliticians,bureaucrats,specialinterestgroups,regulatorsareallsubjecttothesameselfregardinggoalsasareassumedtoexistinmarkets,butsubjecttodifferentconstraints.Thatistheassumptionofeconomicrationalitymaximisingnetbenefitssubjecttotheresourceandinstitutionalconstraintsinthepoliticalmarketplace.
Stigler(1971)wasthefirsttodevelopapositiveeconomictheoryofregulation.Hiscentralhypothesiswasthatregulationwassecuredbypoliticallyeffectiveinterestgroups,invariablyproducersorsectionsoftheregulatedindustry,ratherthanconsumers. Itthushadmuchincommonwiththepoliticalscienceviewofregulatorycapture(Bernstein,1955).
Stigler'smodel,furtherdevelopedbyPeltzman(1976),hasfourmainfeaturesorassumptions.
(1)Theprimaryproducttransactedinthepoliticalmarketplaceiswealthtransfers.(2)Thedemandforregulationcomesfromcohesivecoordinatedgroups,typicallyindustryorspecialinterestgroups,andhencediffersfromtherealmarketplace,whereallconsumersarerepresented.(3)Theeffectivenessofthesegroupsisseenasafunctionofthecostsandbenefitsofcoordination(whichalsoexplainswhyconsumergroupsfindithardtoorganiseasaneffectivelobbygroup).Thesupplysideoflegislationislesseasytodefinegiventhecomplexnatureofpolitical,legislative,andregulatoryprocesses.(4)Thestatehasamonopolyoveronebasicresource:thepowerlegitimatelytocoerce.Thisiscoupledwiththebehaviouralassumptionthatpoliticianssupplyregulationtomaximisethelikelihoodthattheywillbekeptinoffice.
Stigler'stheorygeneratesstrongconclusionswhichhavenotbeenfullysupportedbysubsequentresearch,andindeedobservation(Posner,1974;Peltzman,1989).Forexample,Posner(1971)pointedoutthatthecommonpracticeofregulatorsandlegislatorsrequiringpublicutilitiestocrosssubsidiselossmakingoperationsandconsumergroups(suchasruralconsumers)wasinconsistentwiththetheory.Anotherapparentproblemisthepressureforandaccelerationofderegulationandprivatisation,andindeedthemassiveinjectionofeconomicrationalismintoregulatorypolicy,duringtheThatcherandReaganeras.Hereeconomicefficiencyseemedtodriveregulatorypoliciestoremovepatentlyinefficientandanticompetitivelaws.ThederegulationofairlinesandtelecommunicationsintheUSA,andthewidespreadprivatisationandeconomicregulationofthegas,electricity,telecommunications,water,andrailwaysectorsintheUK,andprogressivelyacrossEuropeandtheworld,poseachallengefortheviewthatregulationisdrivenprimarilybyproducers'interests.Theysuggestthatpowerfulspecialinterest(p.26) groupshadlosttheirpoliticalinfluenceoverpoliticianstoratherundefinedpoliticalforcesoptingforthepublicinterest.
Anotherinterpretationofderegulationisthatthegainstoproducersfromthethenexistingregulationsandpublicownershiphadbeendissipatedandwerenolongersignificant.Peltzman(1989)hasreviewedthisperiodandnotedthatitwasnotacentralfeatureofStigler'sapproachthattheproducers'gainsfrominefficientregulationwere
5
-
Economic Approaches to Regulation
Page 7 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
permanent.Theychangeovertimeandresultinproducersupportforregulationwaning,whichcanexplainderegulation.Thegainsfromderegulationinthefaceofthemountinginefficiencyofexistingregulationcertainlyringstrue,butexistingtheoriesdonotprovideaclearbasisforpredictingwhenderegulationandregulatorychangewillhappen,andinsomeareas(airlines)therewerestillsignificantgainstobehadfromtheexistingregulation.
AsecondapproachstartswithBecker's(1983)workoninterestgroupinfluenceinpolitics.ThisusesthesamebehaviouralassumptionusedbyStiglerbutfocusesnotonpoliticians'desiretostayinpowerbutoncompetitionbetweeninterestgroups.Interestgroupsinvestininfluencingthepoliticalprocesstogainfavourablelegislation.ThekeytoBecker'smodelistherelativepressureexertedbyagroupsincetheinvestmentmadebyopposinggroupswilltendtohaveacounteractingeffectontheeffectivenessofresourcesdevotedtogaininginfluence.Thismeansthata)excessiveresourceswilloftenbeusedtoinfluencethepoliticalprocess;andb)theoutcomewillgenerallybeinefficient.
ThemechanicsandassumptionsofBecker'smodeldonotrequiredetaileddiscussionhere.WhatisofinterestisthatusingsimilarassumptionstotheStigler/Peltzmanmodelhegeneratesmarkedlydifferentpredictionsmoresympathetictothepublicinterest/NTPviewofregulation.Forexample,Becker'smodelindicatesthatastheinefficiencyofregulationincreasesthereislessregulatorylobbying.Thissuggeststhatregulationwhichiswelfareenhancingismorelikelytobeimplemented,andthatindustrieswheremarketfailureissignificantandendemicaremorelikelytoberegulated.Thisisbecauseinefficiencyimpliesthatthelossesaregreaterthanthegainsofinefficientregulation.However,Becker'smodelalsosuggeststhatregulationmayoccurwherethereisnosignificantmarketfailurebecausesomeinterestgroupscanorganisethemselvesmorecheaply.
Yetanotherapproachcomesfromthepublicchoiceschool.Thisbuildsontheconceptofrentseeking(Tullock,1967;Krueger,1980;Rowley,Tollison,andTullock,1988),definedasunproductiveprofitseekingbyspecialinterestgroupstosecurefavourablelegislation.Legislationthatcreatesbarrierstocompetitionorconfersmonopolyrightsleadstoincreasesinthewealthofthosefavoured,whichcannotbeerodedorcompetedaway.Theserentsprovidetheincentiveforproducergroupstoinvestinsecuringfavourablelegislation,hencethetermrentseeking.
Theideabehindrentseekingissimpletoexplain.Takethecasewherethegovernmentplanstoawardamonopolyfranchisetosellsalt,andassumethatthiswillgeneratemonopolyprofitsof20milliontothesuccessfulbidder.Faced(p.27) withthisopportunitypotentialbiddersforthemonopolyrighttosellsaltwouldbepreparedtoinvestresourcesinlobbying(andbribing)thegovernmenttosecurethemonopolyfranchise.Supposethatfourbiddersrevealthemselves.Theexpectedprofitsfromlobbyingforthemonopolyfranchiseis5million(equalto25%ofthe20milliontoreflecttheuncertaintyofwinningthefranchise).Itthuswouldberationalforthefourbidderseachtoexpendupto5milliontosecurethefranchise.Inthiswaythemonopolyprofitisconvertedintounproductiveandwastefulcosts,andinefficientoutcomes.
Takenintheround,economicsisratheragnosticastothepurposeandnatureofregulation.Indeed,thesocalledChicagoSchool,whoseexponentsnumberStigler,Peltzman,Becker,andPosner,donothaveaunitaryviewofregulationotherthanthebeliefthatitcanbemodelledusingeconomics.TheBecker/Posnerapproachisaslikelytoseeregulationastendingtowardefficientresponsestomarketfailure,asitistoidentifyitservingproducers'interestsonly.ThisisgraphicallyseeninPosner'sanalysisofthecommonlawwhichisdrivenbyeconomicefficiencyconsiderations(Rubin,2005;Veljanovski,2008),efficiencymodelsofstatutorylaw,andthegeneraleconomicjustificationforcompetition/antitrustlaws(Posner,2001).Indeed,thoseworkingintheregulatoryfielddonotregardthecapturetheoryasagoodgeneraldescriptionofregulationtoday,whichovertlyseekstoregulatemarketpowerandtofostercompetition.
2.4RegulatoryDesignEconomicshasbeenusedtodesignanddraftefficientorcosteffectivelegalrulesandstandards,andtoidentifytheinefficienciesanddistortiveeffectsofexistingandproposedregulation.Theserangefromratherspecificeconomicapproachestothechoicebetweenlegalrulesandstandard,andexanteandexpostregulation,totheuseofcostbenefitanalysistoensure(cost)effectiveregulationandtocutredtape(HahnandTetlock,2008);ormoreimaginativelytoproposeanddesignmarketlikealternativestothetraditionalcommandandcontrol
-
Economic Approaches to Regulation
Page 8 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
approachtoregulation.Hereweconsidersomeoftheseapplications.
Ithaslongbeenrecognisedthattheinefficiencyofregulationisoftentheresultofamismatchbetweenregulatoryobjectiveandregulatoryinstruments(Breyer,1979and1982).Thisdisjunctionhasbeendueeithertothemultiplicityofgoalsgiventoregulatorsortothebeliefthatnoneconomicgoalscouldbeachievedcostlessly.Ithasalsobeenduetotheexcessiveuseofwhathavebeentermedcommandandcontrolapproaches.Thatis,prescriptiveruleswereusedtoregulateinputsandimposeobligationsbackedbyadministrativeenforcementandpenalsanctions.(p.28) Forexample,safetylegislationwouldrequirecompliancewithtechnicalandlegalrequirementswhichfocusedonsafetyinputs.Theemployerwouldcomplybymakingthenecessarycapitalandotherexpendituressuchaspurchasingmachineswithguards.Thisledtotwoproblemsfirst,itraisedcostsandreducedproductivity;andsecondthemandatedsafetydevicesmaynothavehadanappreciableeffectontheaccidentrate.Italsogaverisetoathirdsetofoffsettingresponsesbythoseregulatedandbenefitingfromregulation(seebelow).Thisresultedintheperversityofincreasedenforcementandcomplianceleadingtohighercostsforindustryyetdisappointingreductionsintheaccidentrate.
2.4.1DesignoflegalrulesEconomicshasbeenusedtoprovideaframeworktoidentifythefactorsthatshouldgovernthechoicebetweenrulesandstandardsandbetweenexanteandexpostresponses.Thisisdrawnfromthelawandeconomicsliterature,butithasdirectapplicabilitytoregulatorydesign.
EhrlichandPosner(1974)werethefirsttosetoutageneralframeworksetaroundminimisingfourcategoriesofcosts:
the(fixed)costsofdesigningandimplementinglegalstandards(rulemakingcosts);thecostsofenforcingthestandards(enforcementcosts);thecoststhattheyimposeontheregulatedindustry(compliancecosts);andthesocialcostsimposedbyregulatoryoffences(harmcosts).
Totheseafifthcostcanbeaddederrorcosts.Judgesandregulatorsarenotomniscientorerrorproof.AsaresulttheymakeTypeIandTypeIIerrors,orsetoutlegalstandardsandrulesthatdonotencourageefficientbehaviour.ATypeIerroriswheretheregulatorfindsaninfringementwhenthereisnone.ATypeIIerroriswhentheregulatorfailstofindaninfringementwheninfactthereisone.Clearlysucherrorsreducethegainsfromcomplyingwiththelaw,andaltertheformallegalstandards.
Anefficientsetofrulesorastandardminimisesthesum(total)oftheseexpectedcostsandlossesbyselectingtheappropriatetypeofrule,andlevelandtypeofenforcement.
Shavell(1984)hasusedavariantoftheaboveapproachtoidentifythefactorsrelevanttothechoicebetweenexpost(liabilityrules)andexantesafetyregulation.Inhismodelthechoiceoftheoptimallegalresponsedependsonweighingfourfactorsamongvictimsandinjurers:
asymmetricinformationconcerningrisks;capacityoftheinjurertopay;probabilityofprivatesuit;relativemagnitudeoflegalandregulatorycosts.
(p.29) Expostresponses,suchastortliabilityandprivatelitigationinantitrust,areattractiveifthevictimisbetterinformed,potentialdefendantscanaffordtopayclaims,thereisahighprobabilityofsuitshouldtherebeanactionablewrong,andlegalprocesscostsarelow.Wherethesefactorsareweak,thenexantelawtechniquesbecomemoreattractive,eitherasasubstituteforprivateorpublicprosecutions,oracomplement.
Thechoicebetweenexanteandexpostlegalresponseshasbeenaperennialtopicinbotheconomicandsocialregulation.IthasfoundnewvitalityinlegalreformacrossEuropeastheEuropeanCommissionandnationalgovernmentsgrapplewiththebestwaytoregulateutilitieswhetherthroughantitrustlaws(anexpostresponse)
6
-
Economic Approaches to Regulation
Page 9 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
orexantesectoralregulation.TheEU'sNewRegulatoryFramework, whichregulatesthecommunicationsindustry,hasemergedfromanintensedebateonwhethertocontrolthemarketpoweroftelecommunicationsoperatorsthroughgeneralcompetitionlaworspeciallycraftedpriceandaccesscontrolsadministeredbysectoralregulators.TheEuropeansolutionhasbeentodevelopanewsystemofexantesectoralregulationbasedonexpostcompetitionlawprinciples.YetanotherexamplehasbeenthemovetogivethoseharmedbybreachesofEUandnationalcompetitionlawstherighttosueandclaimdamages,thusprivatisingpartoftheenforcementprocess.
2.4.2ComparativeregulatoryeffectivenessEconomistshavealsobeguntoinvestigatewhysimilarregulatoryresponsesappearmoreeffectiveinonecountrythananother.Thishasgeneratedabetterunderstandingoftheregulatoryprocessandtheinterplaybetweenregulation,law,andeconomics.Oneapproachtothistypeofcomparativeanalysisisthetransactionscostsapproachassociatedwiththenewinstitutionaleconomics.
LevyandSpiller(1994)provideonevariantofthetransactionscostsapproach.Theyviewregulationasanimplicitrelationalcontract betweengovernmentandaregulatedfirmcharacterisedbyspecificinvestment,opportunitisticbehaviour,andcommitmentandgovernance.Thenetworkindustries(telecommunications,water,gas,electricity,andrailwaysnetworks)havespecificfeaturesthatmarkthemoutfrommostotherindustries:
(1)theirtechnologiesrequireheavyspecific,sunkinvestments;(2)theygeneratesignificanteconomiesofscaleandscope;(3)theyproducemassconsumed,oftenessential,services.
Regulatedfirmsinthesesectorsarerequiredtomakelargeassetspecificinvestmentsinnetworks,i.e.investmentswhichhavelimitedalternativeusesandsalvagevaluegivingrisetolargesunkcosts(andpotentiallystrandedassets).Governments,ontheotherhand,areoftennotboundtoadheretoagreementsandregulationstheysetoutwhentheregulatedfirmsmaketheseinvestments.Thiscancreatesignificantregulatoryriskstothefirmanditsshareholdersasgovernmentsand/orregulators(p.30) effectivelyexpropriatethereturnsbyincreasingregulatoryandindeedcompetitivepressures.
LevyandSpillerseeregulatorydesignasconsistingoftwocomponents:regulatorygovernanceandregulatoryincentives.Thegovernancestructureofaregulatorysystemconsistsofthemechanismsthatsocietiesusetoconstrainregulatorydiscretion,andtoresolveconflictsthatariseinrelationtotheseconstraints.Ontheotherhand,theregulatoryincentivestructureconsistsoftherulesgoverningutilitypricing,crossordirectsubsidies,entry,access,interconnection,etc.Whileregulatoryincentivesmayaffectperformance,LevyandSpillerarguethatregulatoryincentives(whetherpositiveornegative)onlybecomeimportantifeffectiveregulatorygovernancehasbeenestablished.
Thisrequiresthattheregulatoryframeworkbebasedoncrediblecommitmentsbybothparties.Weakregulatorycommitmentscreatepoorincentivesforinvestmentandineffectiveregulation,andthefailureofregulatoryreforms.
AninterestingaspectofLevyandSpiller'sapproachisthefocusonwhattheytermtheinstitutionalendowmentofacountrywhereinregulationtakesplace.Thisconsistsofhardvariablessuchasthenatureoflegislativeandexecutivebranchesofgovernment,theadministrativecapabilities,andjudicialinstitutions;andsoftfactorssuchascustomsandinformalnorms,contendingsocialinterests,andideology.
LevyandSpiller(1994)arguethatthecredibilityandeffectivenessofaregulatoryframeworkandhenceitsabilitytofacilitateprivateinvestmentvarieswithacountry'spoliticalandsocialinstitutions.Thisapproachissupported,forexample,byworkundertakenbytheWorldBank(2004),whichshows,forexample,thatthelegalheritageofacountryparticularlywhethercommonorcivillawhasameasurableeffectonthelevelofgovernanceandefficiencyoflegalinstitution,andalsooneconomicgrowth(Veljanovski,2008).
2.4.3MarketbasedalternativesTheobviousremedytomanyoftheproblemsidentifiedaboveistoabandonthecommandandcontrolapproachandadoptmarketsolutionsormarketbasedregulation.Thesevaryoveraspectrumoftechniquesthatfocusonoutcomesratherthaninputs,andseektogivefirmsandindividualsincentivestoadoptcosteffectivesolutions.
6
7
-
Economic Approaches to Regulation
Page 10 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
Amongthetechniquesavailablearecreatingprivatepropertyrightsandmarkets,auctions,pricing,andfiscalincentives(taxesandsubsidies).
Creatingmarketsisthemostobviousresponsetomanyareaswheredirectregulationiscurrentlyused.Thiscantaketheformofcreatingandenforcingpropertyrightsinpreviouslyunownedresourcesandassets.Thisinturnharnessestheprofitmotivetopreventoverexploitationandhusbandnaturalresources.
ConsidertheplightoftheAfricanelephant.TheregulatoryresponseistohavestaterunNationalParksandamilitiatoprotecttheelephantsfrombeinggunned(p.31) downedbypoachers.Thegovernmentcanrespondtoincreasedpoaching(whichisaproductoftheworlddemandforivory)bymakingthepenaltiesforpoachingdraconianandburninganyconfiscatedivory.Butthisintheendonlysendsthemarketpriceofivorysoaringandincreasesthegainsfrompoaching.Analternativeresponseistoprivatisetheelephants.Ifelephantfarmswerepermitted,normaleconomicforceswouldensurethatthesepreciousbeastswerenotpoachedtoextinction.ThistypeofresponseishappeninginAfrica.
Inothercasespseudomarketscanbesetup,suchastradablepollutionoremissionrights.Forexample,marketableemissionorpollutionpermitscanbeissuedtofirmsuptothelevelofthedesiredcutback.Thepermitscanthenbetraded.Thiscreatesamarketinpollutioninwhichfirmswhofinditunprofitabletoreducethelevelof,say,toxicemissionssellpermitstootherfirmsthatcanachievereductionsatlowcostorwhichvaluetherighttopolluteveryhighly.Inthiswaythedesiredreductioninpollutionisachievedintheleastcostlyway.
Marketsolutionsarebeingusedinotherareas,suchasradiospectrum.Todaytheuseofmarketsolutionshasbecomeaccepted,butnotasyetafullyfledgedmarketinspectrum.AcrossEuropeandelsewhereauctionshavebeenusedtoallocatespectrumtothirdgeneration(3G)mobilephones.Thishastheattractionofbeingamoretransparentandfairerwayofallocatingspectrumthanthepreviousbeautyparadesbasedonadministrativeandtechnicalcriteria,andofcoursehasraisedconsiderablesumsofmoneyforgovernments.Further,reformsareafoottoextendtheuseofmarketstoallowlimitedtradinginspectrum,knownassecondarytrading,intheUK(CaveReport,2002)andEurope,ashasalreadybeenimplementedinNewZealandandAustralia.OnecountrythathasgonefurtherbyembracingamarketsolutionhasbeenGuatemala,underitstelecommunicationslawof1995.Spectrumrightstherehavebeenassignedonafirstintimebasisforusesdeterminedbythosefilingclaimswiththeregulatoryagency.Thosewhohavesecuredspectrumrightscannegotiatechangeofusesubjecttopredefinedtechnicallimitsdesignedtominimisetechnicalinterference.Thismarketdeterminedapproachappearstobeworkingwell(SpillerandCardilli,1999).
Theaboveattractionsofmarketsolutionsmustbequalified.Themerefactthatamarkettypeapproachhasbeenadopteddoesnotguaranteeitsefficiencyoreffectiveness.Thisisbecausegovernmentstillplaysalargeroleinsettingthenumberoftradablepermits,thedefinitionofinitialpropertyrightsandthetaxbaseandrates.Oftentheseareinappropriatelyset.Arecentexampleofgovernmentfailureinthisareawasin2006,whenitemergedthatsomeEUmemberstates(e.g.Germany)hadissuedpermitsallowingmorecarbonemissionthanthelevelofCO2producedbytheirindustries.TheresultwasnoexpectedreductioninCO2emissionsandmarketchaosasthepriceofthetradableemissionrightshalvedfromapeakof30to12pertonneoverseveraldaysinApril2006.Theauctionofspectrumlicencesisanotherexample.Whilethiscanplacetheavailablespectruminthehandsofthosewhovalueitmost,theuse,amount,andparcellingof(p.32) spectrumamongusersisstilldeterminedbygovernment,andtradinginspectrumislimited.Thuswhileanauctionandasecondarymarketcanmakeagoodjobofabadsituation,theoveralloutcomemaystillbefarfromefficient.
Anothersolutionistousepricestorationusageandguideinvestment.Theuseofpriceshasbeenadvocatedformanyyearsbyeconomiststodealwithroadcongestionandpollution.Theadoptionhasbeenhinderedbypoliticalresistanceandtheabsenceofatechnologythatwouldenablesuchpricingschemes.Asthevolumeoftrafficandcongestioninurbanareashasincreased,however,governmentshavebeenforcedtoseeksolutionsratherthanendlesslyattempttobuildthemselvesoutofcongestion.Singaporepavedtheway,andcongestionchargesimplementedincentralLondonhavereducedthevolumeoftraffic.
Thelastapproachisfiscalinstruments.Aregimeoftaxesisimplementedwhichreflectthesocialcoststhataharmfulactivityimposesonsociety.Thus,insteadofhavingenvironmentalcontrols,apollutiontaxisimposedonsomemeasureofemissionorsomevariablepositivelycorrelatedwiththelevelofpollution,suchasunitsofoutputsold.Byimposingataxonpollutionorinjuriesthatapproximatestheuncompensatedlossesimposedonother
-
Economic Approaches to Regulation
Page 11 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
individuals,theindustryislefttodecidewhethercleanupiscosteffectiveandinwhatwaysitcanbeundertaken.Taxesmustideallybeplacedontheundesirableactivitythatoneisseekingtointernaliseordeter.Forexample,ifonewantstoencourageacosteffectivereductioninpollution,theidealtaxisanemissionorpollutiontaxwhichisplacedontheharmfuloutputoractivity.Imposingataxoncarsisnotefficientsinceitdoesnottakeintoaccountthelevelofemissionofdifferentcars,nordoesitencouragetheadoptionoflesspollutingengines.Thusthechoiceofthetaxbaseandthetaxlevelareimportant,asaretheenforcementcosts.
2.5RegulatoryImpactStudiesWhetherandtowhatextentregulationachievesitsstatedgoalsisanunderresearchedsubject.Regulatoryimpactstudiesseektopredictandmeasuretheimpactofregulationoftenusingsophisticatedempiricaltechniques.Sometakethisfurtherbyundertakingcostbenefitassessments(Hahn,2008;HahnandTetlock,2008;RadaelliandDeFrancesco,2010thisvolume).
Impactstudiesarenotstraightforward,easytoundertake,orcommon,andoftentheirqualityislow.Thefirstreasonisthatoftenthedatarequiredtoundertakeanimpactstudyareunavailableorincomplete.Thesecondreasonisthattheeffectsofregulationmaybedifficulttoidentifyandpredict.Toillustrate,considerseveralexamples.
(p.33) Themarketfailureapproachinterpretsenvironmentalandindustrialsafetylegislationasresponsestodealwiththeinabilityofmarketstoprovideadequateprotectionofworkers,consumers,andthepublic.Thisisoftenthestatedintentionofsuchlegislationandassumedtobeitseffect.Yetempiricalresearchoftenfailstofindsignificantimprovementsinenvironmentalqualityandsafetyarisingfromsuchlaws,evenwhiletheyincreaseindustrycostssubstantially.Thissuggeststhatthereisindustrycompliancecoupledwithlowimpactinachievingstatedregulatoryobjectives.Onereasonforthefailuretohaveabeneficialimpacthasbeentheexcessiveuseofcommandandcontrolapproaches.
Thereisanotherfactorwhichoftenexplainswhytheactualimpactofregulationondesiredgoalsislessthanpredictedorestimated.Firms,management,workers,andconsumersoftenrationallyadapttotheseincreasedcostsandconstraintofregulationbyrelaxingunregulatedeffortsandinputswhichmaybemoreeffectiveinreducingaccidents.Resourcesaresimplychannelledintocompliancewithineffectivelaws,ratherthanintopreventingaccidentsinthemosteffectiveway.ThistypeofadaptiveresponseisgraphicallyillustratedbyacaseunearthedbyKaganandScholz(1984)intheirstudyoftheenforcementofindustrialsafetyregulationbytheUSOccupationalSafetyandHealthAdministration(OSHA).AsteelcompanybecameembroiledindisputeswithOSHA,whichduringthe1970sadoptedanaggressiveenforcementpolicy.Oneofthefirm'simmediateresponsestowhatitregardedasunreasonablepersecutionsbyOSHAwastosackthetrainedsafetyengineerwhoheadeditsaccidentpreventionprogrammeandreplacehimwithalawyerchargedwithlitigatingOSHAprosecutions.Thisoutcomeisaclearexamplewheretheresponsewastosubstituteoneinputforanother(inthiscasetodealwithregulation)thatwaslesseffectiveinreducingharmandimprovingworkerwelfare.
Theeffectsofsuchsafetyregulationdonotstopthere.Ithasindirecteffects.Ifregulationisstringentandvigorouslyenforced,itraisesafirm'scostsandmakesentryintotheindustrymoredifficultforthesmallerfirm.Iffirmshavedifferentcompliancecosts,owingtotheirsize,location,ortheproductionprocessused,thenregulationwillhaveamorepronouncedimpactonsomefirmsthanothers.This,inturn,willdisadvantagethosefirmsbearinghighercosts,andthehighercostswillactasabarriertotheentryofnewfirmsortheexpansionofsmallfirms.Anumberofempiricalstudieshaveconfirmedthis.
AstudyofUSindustrialsafetyandenvironmentalregulationsbyBartelandThomas(1987)foundthattheseraisedtheprofitsofindustrieswithahighproportionofworkersinlargefirmsorinthefrostbelt,whilethoseindustrieswithalargenumberofsmallfirmsorlocatedinthesunbeltlostprofits.Thatis,theyactedtogiveacompetitiveadvantagetolargerfirmsandthoseinparticularlocations.Thisisexactlytheoutcomethatpublicchoicetheoristswouldpredictestablished,politicallyeffectivefirmsoftenlobbyforlegalisticcommandandcontrolapproachestoregulationspecificallybecausetheyimposegreatercostsoncompetitorsandenhancetheirownprofits,andthisexplainswhyindustryisoftenhostiletotaxand(p.34) liabilityapproaches,whichwouldhittheirprofitsimmediately(BuchananandTullock,1975).Oritmayjustbetheunintendedconsequence.Eitherwaythesecostsandconsequenceswhicharewiderandmoresubtleareoftennottakenintoaccountanddifficulttomeasure
-
Economic Approaches to Regulation
Page 12 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
retrospectively.
Anotherinterestingillustrationofadaptiveoffsettingresponsesistheexperiencewithcompulsoryseatbeltlegislation.Thereisnowfairlyconclusiveevidencethattheneteffectofseatbeltlawshasbeensmall.Thisisnotbecausetheyareineffectiveinprotectingvehicleoccupantsbutbecausetheyencouragerisktakingandaccidentsbydrivers.Compulsoryseatbeltlegislationreducesdriverrisksandinjuries,whichcanresultindriversadjustingtheirbehaviourbydrivingfasterandwithlesscare.Thiscanleadtofewerdriverfatalitiesandmorepedestrianfatalitiesandinjuries,anddamagetovehicles,thusincreasingaccidentcosts.Theeconomicsofthedrivers'decisionissimpletoexplain.Acompulsoryseatbeltrequirementdecreasestherisksandharmtothedriverwhichcauseshimorhertoundertakemoreriskyaggressivedriving.
Peltzman(1975)testedthissimpleeconomicpropositionusingtheUSNationalTrafficandMotorVehicleSafetyAct1966,whichmadethewearingofseatbeltscompulsory.Usingstatisticalanalysis,hefoundthatoccupantdeathsperaccidentfellsubstantiallyasexpected,butthisreductionwasentirelyoffsetbymoreaccidentstothosenotprotectedbyseatbelts,i.e.pedestriansandcyclists.Whilethisfindingwasridiculedatthetimeasfanciful,subsequentresearchbyeconomistsandtrafficsafetyengineershasconfirmedthatcompulsoryseatbeltlegislationhasnotresultedinameasurabledeclineinroadfatalities(Adams,2001).Indeed,Peltzman(2005)hasrevisitedhisoriginalresearchtonotethattheannualrateofdeclineinhighwaydeathsintheUSAwas3.5percentfrom1925to1960,beforethelegislationwasenactedandattheheightofNaderism;andbetween1960and2004itwasalso3.5percent!
Thetheoryofoffsettingbehaviourisevidentinmostcommandandcontrollegislation.Minimumwagelaws,rentcontrols,sexualandracialdiscriminationlaws,andaffirmativeactionlawsallleadtoadaptiveoroffsettingeffectsthatreduce,sometimessubstantially,theirimpact.Individualsandfirmsseektominimisethecoststhattheselawsimpose,andthisleadstoawiderrangeofsubstitutioneffects,whichmayoftennotbeinthedesiredorexpecteddirection.
2.6ConclusionToparaphraseKeynes,theeconomicsofregulationisnotasettledbodyoffactsbutanapproach.Itusestheeconomists'toolkittodeveloppoliticaleconomytheoriesofregulation,andtoassistregulatorswiththetechnicaldetailsofframingeffective(p.35) regulation.Itishoweverstillinitsformativephases.Thereremainmanypuzzlesandparadoxestobeexplainedsuchasthetremendousgrowthinregulationinparallelwithgreaterroleplayedbymarketsandeconomics;thenatureofregulatoryfailure;whatpropelspublicinterestregulatoryreform;andwhatexplainsthesedifferentregulatorystylesandapproaches.
IamgratefultoDavidRound,DavidStarkie,andMartinCaveforcommentsandadviceonanearlierdraft.
ReferencesADAMS,J.(2001).Risk,London:Routledge
AKERLOF,G.A.(1970).TheMarketforLemons:QualityUncertaintyandtheMarketMechanism,QuarterlyJournalofEconomics,84:488500.
ARMSTRONG,M.,COWAN,S.,&VICKERS,J.(1994).RegulatoryReform:EconomicAnalysisandBritishExperience,Cambridge,MA:MITPress.
AVERCH,H.&JOHNSON,L.L.(1962).BehaviouroftheFirmunderRegulatoryConstraints,AmericanEconomicReview,52:105269.
BARTEL,A.P.&THOMAS,L.C.(1987).PredationthroughRegulation:TheWageandProfitEffectsoftheOccupationalSafetyandHealthAdministrationandtheEnvironmentalProtectionAgency,JournalofLawandEconomics,30:23965.
BATOR,F.M.(1958).TheAnatomyofMarketFailure,QuarterlyJournalofEconomics,72:35179.
-
Economic Approaches to Regulation
Page 13 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
BAUMOL,W.J.(2002).TheFreeMarketInnovationMachine,Princeton,NJ:PrincetonUniversityPress.
BECKER,G.(1983).ATheoryofCompetitionAmongPressureGroupsforPoliticalInfluence,QuarterlyJournalofEconomics,98:371400.
BERNSTEIN,M.(1955).RegulationofBusinessbyIndependentCommissions,Princeton,NJ:PrincetonUniversityPress.
BREYER,S.G.(1979).AnalysingRegulatoryFailure:Mismatches,LessRestrictiveAlternatives,andReform,HarvardLawReview,92:549609.ReprintedinI.A.Ogus&C.G.Veljanovski(eds.),ReadingsintheEconomicsofLawandRegulation,Oxford:ClarendonPress,1984,2349.
(1982).RegulationanditsReform,Cambridge,MA:HarvardUniversityPress.
BUCHANAN,J.&TULLOCK,G.(1962).TheCalculusofConsent,AnnArbor:UniversityofMichiganPress.
(1975).Polluters'ProfitandPoliticalResponse:DirectControlsVersusTaxes,AmericanEconomicsReview,XX:12947.
CAVEREPORT(2002).ReviewofRadioSpectrumManagement:AnIndependentReviewforDepartmentofTradeandIndustryandHMTreasury(Chair:ProfessorMartinCave),March.
CHEUNG,S.N.S.(1973).TheFableoftheBees:AnEconomicInvestigation,JournalofLawandEconomics,16:1133.
COASE,R.H.(1937).TheNatureoftheFirm,Economica,4:386405.
(1959).TheFederalCommunicationsCommission,JournalofLawandEconomics,2:140.
(1960).TheProblemofSocialCosts,JournalofLawandEconomics,3:144.
DEMSETZ,H.(1969).InformationandEfficiency:AnotherViewpoint,JournalofLawandEconomics,12:122.
DOWNS,A.(1957).AnEconomicTheoryofDemocracy,NewYork.HarperandRow.
EHRLICH,I.&POSNER,R.A.(1974).AnEconomicAnalysisofLegalRuleMaking,JournalofLegalStudies,3:25786.
HAHN,R.W.(2008).DesigningSmarterRegulationwithImprovedBenefitCostAnalysis,AmericanEnterpriseInstitute,WorkingPaper0820.
(p.37)&TETLOCK,P.C.(2008).HasEconomicAnalysisImprovedRegulatoryDecisions?JournalofEconomicPerspectives,22:6784.
HERZEL,L.(1951).PublicInterestandtheMarketinColorTelevision,UniversityofChicagoLawReview,18:80216.
KAGAN,R.&SCHOLZ,J.(1984).TheCriminologyoftheCorporationandRegulatoryEnforcementStyles,inK.HawkinsandJ.Thomas(eds.),EnforcingRegulation,Boston:KluwerNijhoff.
KAHN,A.(1970).TheEconomicsofRegulation:PrinciplesandInstitutions,VolumeI,NewYork:JohnWiley&Sons.
KAYJ.&VICKERS,J.(1988).RegulatoryReforminBritain,EconomicPolicy,7:334.
KRUEGER,A.O.(1980).ThePoliticalEconomyofaRentSeekingSociety,AmericanEconomicReview,64:291303.
LAFFONT,J.J.andTIROLE,J.(1993).ATheoryofIncentiveinProcurementandRegulation,Cambridge,MA:MITPress.
LEVY,B.andSPILLER,P.T.(1994).TheInstitutionalFoundationsofRegulatoryCommitment:AComparativeAnalysisofTelecommunicationsRegulation,JournalofLaw,EconomicsandOrganization,10:20146.
MACNEIL,I.R.(1980).TheNewSocialContract:AnInquiryintoModernContractualRelations,NewHaven:Yale
-
Economic Approaches to Regulation
Page 14 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
UniversityPress.
MOTTA,M.(2004).CompetitionPolicyTheoryandEvidence,Cambridge,CambridgeUniversityPress.
NISAKINEN,W.(1971).BureaucracyandRepresentativeGovernment,Chicago:Adline.
O'DONOGHUE,R.&PADILLA,A.J.(2006).TheLawandEconomicsofArticle82EC,Oxford:OxfordUniversityPress.
OLSON,M.(1965).TheLogicofCollectiveAction,Cambridge,MA:HarvardUniversityPress.
PELTZMAN,S.(1975).TheEffectsofAutomobileSafetyRegulation,JournalofPoliticalEconomy,83:677725.
(1976).TowardaMoreGeneralTheoryofRegulation,JournalofLawandEconomics,19:21140.
(1989).TheEconomicTheoryofRegulationAfteraDecadeOfDeregulation,BrookingsPapersOnEconomicActivity:Microeconomics,159.
(2005).RegulationandtheNaturalProgressofOpulence,Washington,DC:AEIBrookingsJointCenterforRegulatoryStudies.
POSNER,R.A.(1971).TaxationbyRegulation,BellJournalofEconomicsandManagementScience,2:2250.
(1974).TheoriesofEconomicRegulation,BellJournalofEconomicsandManagementScience,5:2250.
(2001).AntitrustLaw(2ndedn.),Chicago:ChicagoUniversityPress.
RADAELLI,C.&DEFRANCESCO,F.(2010).RegulatoryImpactAssessment,inR.Baldwin,M.Cave,andM.Lodge(eds.),TheOxfordHandbookofRegulation,Oxford:OxfordUniversityPress.
ROWLEY,C.K.,TOLLISON,R.D.,&TULLOCK,G.(eds.)(1988).ThePoliticalEconomyofRentSeeking,Amsterdam:KluwerAcademicPublisher.
RUBIN,P.H.(2005).WhyWastheCommonLawEfficient?inF.ParsiandC.K.Rowley(eds.),TheOriginsofLawandEconomics:EssaysbytheFoundingFathers,Cheltenham:EdwardElgar.
(p.38) SCHUMPETER,J.A.(1947).Capitalism,Socialism,andDemocracy(2ndedn.),NewYork:HarperandBrothers.
SHAVELL,S.(1984).LiabilityforHarmversusRegulationofSafety,JournalofLegalStudies,13:35774.
SHELANSKI,H.&KLEIN,P.(1995).EmpiricalResearchinTransactionCostEconomics:AReviewandAssessment,JournalofLawEconomicsandOrganization,11:33561.
SPILLER,P.T.&CARDILLI,C.(1999).TowardaPropertyRightApproachtoCommunicationsSpectrum,YaleJournalonRegulation,16:7581.
SPULBER,D.F.(ed.)(2002).FamousFablesofEconomics:MythsofMarketFailure,Oxford:Blackwell.
STIGLERG.J.(1971).TheTheoryofEconomicRegulation,BellJournalofEconomicsandManagementScience,2:321.
TULLOCK,G.(1967).TheWelfareCostofTariffs,Monopoly,andTheft,WesternEconomicsJournal,5:22432.
VELJANOVSKI,C.(2006).EconomicsofLaw(2ndedn.),London:InstituteofEconomicsAffairs.
(2007).EconomicPrinciplesofLaw,Cambridge:CambridgeUniversityPress.
(2008).TheCommonLawandWealth,inS.F.Copp(ed.),TheLegalFoundationsofFreeMarkets,London:InstituteofEconomicAffairs.
VISCUSI,W.K.,HARRINGTON,J.E.,&VERNON,J.M.(2005).EconomicsofRegulationandAntitrust(4thedn.),Cambridge,MA:MITPress.
-
Economic Approaches to Regulation
Page 15 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
WILLIAMSON,O.E.(1975).MarketsandHierarchies,NewYork:FreePress.
(1985).TheEconomicInstitutionsofCapitalism,NewYork:FreePress.
WOLF,C.(1988).MarketsorGovernments:ChoosingBetweenImperfectAlternatives,Cambridge,MA:MITPress.
WORLDBANK(2004).DoingBusinessin2004:UnderstandingRegulation,Washington,DC:WorldBank.
Notes:(1.)AlsoseetheclassicbutdatedtextbyKahn(1970)whichtakesthisnarrowerview.
(2.)Councilregulation(EC)No139/2004ControlofConcentrationsbetweenUndertakings.
(3.)Thetermexpectedhereisusedtotakeaccountofriskanduncertainty,expectedbeingusedinthesenseoftheexpectedvalueofanuncertainoutcome,andtoemphasisethateconomicefficiencyisanexanteconcept.
(4.)Economistshavegenerallyassumedratherthanestablishedmarketfailure.Aclassicexampleoftenusedineconomicstextsisthebeeandapple.AccordingtothedistinguishedeconomistJamesMeade,whenbeesmakehoneyfromandpollinatetheappleblossomsthisisanexampleofareciprocalexternalbenefitswhichthemarketfailedtotakeintoaccount.Cheung's(1973)studyofbeekeepingshowedthatthiswasnotthecase,andmarketsdiddealwiththisintheabsenceofgovernmentintervention.InWashingtonStatetherewasanactivemarketinnectarandpollinationserviceswhichwasevenadvertisedintheYellowPagestelephonedirectory.Cheung'sstudyshowedawelldevelopedsetofcontractualpractices,whichevendealtwithotherexternalitiesarisingfromstrategicbehaviourwhereapiaristscontractedforfewerbeehives,takingadvantageofpositivebenefitsofneighbouringorchardists,and,secondly,theuseofpesticidespraysdamagingbees.Manyoftheotherexamplesusedbyeconomiststurnoutnottobemarketfailure(Spulber,2002).
(5.)StiglermakesuseoftheinsightsfromtheearlierworkofDowns(1957)andOlson(1965).AseparateliteraturelooksattheeconomicsofbureaucracyandagencybehaviourstartingwithNisakanen(1971).
(6.)Directive2002/21/EConacommonregulatoryframeworkforelectroniccommunicationsnetworksandservices,24April2002(FrameworkDirective);Directive2002/19/EConaccessto,andinterconnectionof,electroniccommunicationsnetworksandassociatedfacilities,7March2002(AccessDirective).
(7.)ThetermcomesfromthewritingsofIanMcNeil(1980),alawyer,inaseriesofarticlesbeginninginthe1960s,andhasbeendevelopedintoaneconomicmodelofcontractbyWilliamson(1975)andothers.Viewsaboutrelationalcontractsdiffer,withMcNeilseeingthemlargelyaslongtermpersonalcontractswhereaseconomistsviewthemascontractswhereassetspecificityiscritical.
CentoVeljanovskiCentoVeljanovskiisManagingPartneratCaseAssociates(London)andAssociateResearchFellowattheInstituteofAdvancedLegalStudiesattheUniversityofLondon.
-
Economic Approaches to Regulation
Page 16 of 16
PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2014. All RightsReserved. Under the terms of the l icence agreement, an individual user may print out a PDF of a single chapter of a title in OxfordHandbooks Online for personal use (for details see Privacy Policy).Subscriber: Pontificia Universidad Catolica del Peru (PUCP); date: 01 May 2015
