Four schools have laid the foundation for the regulations: the regulation of public economics, industrial economics of regulation, the new public economics of regulation and the institutional economics of regulation.
The public economics of regulation
The regulator's objective is economic efficiency. It is concerned with the general interest. The existence of failures (public goods, externalities, monopoly natural) market, highlighted in the context of economic well-being, justify government intervention. The State must by regulations, influence the behavior of firms and consumers (Pigou, 1932). His approach is prescriptive, it aims to achieve optimal resource allocation Pareto type (first best). The State is compelled either to difficulties in gathering information, either by limited computing capacity. It is therefore regarded as infallible.
Institutional economics of regulation
This school leaves open many solutions to address problems of externalities, natural monopolies or public goods, including the option of doing nothing when the remedy is more costly to society than the disease. She comes from the work of Coase (1960). He said the state must intervene at once to ensure the functioning of the economy by assigning initial property rights. The regulations can not impose that on two conditions: either the transaction costs and regulatory costs are lower than other solutions, whether those costs are outweighed by the benefits of the action itself. Indeed, regulation makes sense only if it allows efficient allocation of cost.
The industrial economy of regulation
The regulatory authority is venal and under the influence of lobbyists. It is no longer the guarantor of the general interest. The regulation is analyzed here as a service exchanged between policy makers and officials (suppliers) and business leaders (plaintiffs). The suppliers are seeking to maximize their chances of getting reelected or future positions in the industries they have under their tutelage. Applicants wishing to their part to protect themselves from competition, especially foreign. This approach is known as the theory of regulatory capture, because the controller becomes a fully agent serving corporate interests. To limit the action of pressure groups, Stigler (1971), advocated a radical solution that involves removing the state the right to regulate.
The new economics of public regulation
The public economics of regulation
The regulator's objective is economic efficiency. It is concerned with the general interest. The existence of failures (public goods, externalities, monopoly natural) market, highlighted in the context of economic well-being, justify government intervention. The State must by regulations, influence the behavior of firms and consumers (Pigou, 1932). His approach is prescriptive, it aims to achieve optimal resource allocation Pareto type (first best). The State is compelled either to difficulties in gathering information, either by limited computing capacity. It is therefore regarded as infallible.
Institutional economics of regulation
This school leaves open many solutions to address problems of externalities, natural monopolies or public goods, including the option of doing nothing when the remedy is more costly to society than the disease. She comes from the work of Coase (1960). He said the state must intervene at once to ensure the functioning of the economy by assigning initial property rights. The regulations can not impose that on two conditions: either the transaction costs and regulatory costs are lower than other solutions, whether those costs are outweighed by the benefits of the action itself. Indeed, regulation makes sense only if it allows efficient allocation of cost.
The industrial economy of regulation
The regulatory authority is venal and under the influence of lobbyists. It is no longer the guarantor of the general interest. The regulation is analyzed here as a service exchanged between policy makers and officials (suppliers) and business leaders (plaintiffs). The suppliers are seeking to maximize their chances of getting reelected or future positions in the industries they have under their tutelage. Applicants wishing to their part to protect themselves from competition, especially foreign. This approach is known as the theory of regulatory capture, because the controller becomes a fully agent serving corporate interests. To limit the action of pressure groups, Stigler (1971), advocated a radical solution that involves removing the state the right to regulate.
The new economics of public regulation
Proponents of this theory are Laffont and Tirole (1993). The idea is to analyze the failures of the legislature and correct, as the market is not the only source of shortcomings. The failures of regulation should be minimized in order to achieve a Pareto efficient allocation of second rank. The latter is the allocation of resources is the "best possible" given the existence of different constraints to achieve a Pareto optimum. These defects are mainly: the information asymmetry between the regulator and the regulated self-interest of the regulator, and its lack credibility. The theory of incentives and contracts overcomes these shortcomings.
Source: My Memory DEA
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