Shared Flashcard Set

Details

Bus 404
chapter 10
18
Business
Undergraduate 1
05/17/2009

Additional Business Flashcards

 


 

Cards

Term
Regulation
Definition

Government intervention in econo9mic activity using:

-Commands

-Controls

-Incentives

Term
Participation in Rule Making
Definition
Interest goups rank participation in rulemaking as more important than campaign contributions or litigation in nonmarket activities
Term
Periods of Regulatory Change
Definition

Populist era – 

late 1880’s – farmers regulation rates

* Progressive era and the New Deal – 

late 1930’s – 1940’s – industries

* Social regulation 

1960’s –1970’s – safety, health, & environment

* Economic deregulation – 

intended to reduce prices

 

 

Term

Constitutional Basis for Regulation

Definition

Section 8 of Article 1 gives Congress the power to regulate commerce among the several states.

5th Amendment – due process

14th Amendment – applies the due process requirements to the states


Term
Regulatory Agencies
Definition

Independent Commissions

Executive Branch Agencies

Term

 

Administrative Procedure Act (1946)

 

Definition

APA requires notice and

Actions must not be arbitrary

Capricious, or

An abuse of discretion

Term
Rule Making
Definition

 

Rulemaking is the most important activity of most regulatory agencies.

These agencies are influenced by the executive branch via appointments and congress via budgetary and oversight authorities.

Courts influence regulation via review of regulatory actions for constitutionality and for consistency with statutes.


 

Term

Explanations for Regulation

Definition

Market imperfections theory predicts that regulation will be instituted to improve economic efficiency by correcting imperfections.


Political theory predicts that interest groups seek regulation to serve their interests.


Term

 

Market Imperfections

 

Definition

natural monopoly

externalities

pecuniary

nonpecuniary

public good

asymmetric Information

Moral Hazard

Term
Natural Monopoly
Definition

 

one firm can produce a given set of goods at a lower cost than can any large number of firms.


 

Term
Pecuniary
Definition

 

actions of one affects others through changes in prices of goods and services.  New plant, wages increase, supply and demand.  Does not provide a rationale for regulation.


 

Term
nonpecuniary
Definition

 

actions of one affects the preferences or production opportunities of others.  Autos, pollution.  Divergence of private costs from social costs.  Does provide a rationale for regulation.

 

 

Term
Public Goods
Definition

consumption by one does not reduce its availability for others.  Apple vs. National Defense.  Preferences affect goods.


Term
Asymmetric Information
Definition

one has different (private) information at the time they act.  Used car example.  Liability is an alternative to regulation.-Let the people sue eachother

- someone has an advantage because they have info

Term
Moral Hazard
Definition

behavior induced when people do not bear the full consequences of their actions.  Insurance.  Controlled by structuring incentives to take into account in decision making.  Co-pays.


Term
Government Imperfections
Definition

“…in regulating, the cure may be worse than the disease…”

- if industry controlled itself it could be better

Term
Political Economy of Regulation
Definition

1) Economic regulation is initially imposed to adress market imperfections...Regulaters begin to see problems as their own... Over time it will evolve to serve the interests of the regulated industry.

2) Regulation is supplied in response to the demands of interest groups 

3)Regulation is shaped by the efficiency consequences of policy alternatives and the policy responses to those consequences.... Regulatory policy is a product of interest group actions and institutions.

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