Regulatory economics
Market regulation or market intervention called direct state intervention in the economy and the state processes influencing the behavior of entrepreneurs and consumers to track certain, existing in the general interest objectives. Market regulation is justified by market failure. Market regulation is a form of process policy.
Conceptual history
The term regulation is still defined in science and practice neither uniformly used, it is strongly influenced by American literature. In the German Administrative law there is the concept only since about 1990, although there were forms of regulation since the 19th century in Germany. Regulation is understood as an alternative between the extreme positions of a free ( unregulated ) market economy and communism.
In the analysis of the occasion for the establishment of regulatory two strands of theory are distinguished in principle. The positive approach of George Stigler assumes that regulation is caused by the market participants themselves. For his theory that the regulation is in great demand himself, he was awarded the Nobel Prize in Economics. The normative theories of mind seeing market failure as an opportunity. However, all theories refer only to the various forms of regulation in the United States.
Means of market regulation
What resources are used depends on the reason for the market regulation. There are mainly three forms of market failure cited as reasons for the regulation of markets, natural monopolies, externalities and information asymmetries. Regulation is seen in part on the control of market failure in addition to their " warranty function" as a precondition and framework for the market.
Natural monopolies
A natural monopoly exists in cases where services are handled by a stationary network, increase its operating costs only slightly higher capacity. Examples include, without limitation Railway infrastructure companies, power companies and the telecommunications network. A competition of different infrastructure managers would not be realistic due to the scale effect and the consumption of resources in these cases.
Regulatory tasks are often perceived in these cases by a regulatory authority, it must be mentioned here in particular:
- Ensuring sufficient infrastructure, which also ensures a supply at peak load
- Ensuring universal coverage. Companies have a natural interest to provide preferred lucrative metropolitan areas ( cherry picking ), the supply less attractive areas can be considerably more expensive. Therefore, a legal obligation to contract shall be made for such monopolists often, which means that the company may refuse the provision of services to any ( wealthy ) citizens.
- Consumer protection by controlling the Terms and maximum price regulation
- For a monopolist potential competitors from using the network can not rule out network access systems are often made, particularly market access, pricing and tariff regulations.
Externalities
External effects or externalities are uncompensated impact of economic decisions on unaffiliated market participants. This uncompensated effects may be negative or positive. Negative externalities cause a production lot about the social optimum, positive externalities a production volume below the social optimum. In the case of externalities is the objective of market regulation to internalize uncompensated impact of different instruments.
Example pollution: Possible regulatory measures are:
- Legal provisions for environmental technical systems
- The taxation of polluting emissions
- Emissions Trading
Example Financial Markets: Unregulated financial markets have caused in the past several times severe financial and economic crises. For example, the Black Thursday or Black Friday in Europe of 1929 that led to the Great Depression and the Great Depression. The financial crisis that began in 2007 was exacerbated by deregulation or inadequate financial market regulation. Regulatory measures include, without limitation here:
- Financial Market Supervisory Authority
- Banking regulation
- Systemically important banks by law to compel the formation of capital reserves, so that in the event of a financial crisis is no bail-out at taxpayer expense is required.
Example: Research and Technology: If a company developed a new technology or a scientist makes a new discovery, other companies or other scientists benefit from this innovation, without the original inventor is compensated. Regulatory measures include, without limitation here:
- Subsidies
- Patents
Information asymmetries
Information asymmetries may exist between providers and consumers of products or services in terms of price and quality features. Examples include, without limitation Food quality, drugs and treatment. Market regulation is effected here by:
- Labeling requirements and the obligation to product labels
- Disclosure obligations
Problems
Regardless of regulations from time to time should be subjected to critical scrutiny, as they tend to progress, based on a momentum of its own to stay if the reasons that spoke for their introduction, have long since ceased to exist. Regulations for extended periods often lead to a condition known as capture, which is characterized in that the regulator takes the view through the often intense collaboration with the regulated company and there is no effective regulation more.