Impact Of Government Intervention Flashcards
What indicators might be used to judge the effectiveness of industry regulation by the competition authorities
- real prices for consumers
- size of industry profits
- jobs
- performance targets
- research spending
- productivity improvements
- environmental indicators
- investment in new capacity to meet future demand
Examples of intervention into markets through regulations
Healthy and Safety at Work Act covering all businesses
Regulations on Max CO2 emissions per km travelled
A command and control approach
Innovation
Cap on emissions higher than actual
Max limit might shift FDI outside the EU
Bringing vehicles into the Emissions Trading Scheme
Cap on emissions - ‘allowances’ are traded.
Innovation
Collapse in prices has eroded the incentives for investment.
Higher road and fuel taxes
Inelastic demand - fuel taxes generate significant revenues.
Easy to collect and adjust the rate.
Tax depends on actual fuel consumption not the theoretical level.
The case for regulating negative externalities
- act as a spur for business innovation
- regulations may be more effective if demand is unresponsive to price changes
- can be gradually toughened each year - stimulate capital investment
The costs / disadvantages of adding extra regulation of industries
Cost of enforcement
Gov failure
Discourage small businesses and lower competition
Limits to government intervention
- limit innovation
- prevent new firms entering
- costs of regulation
- lack powers to protect consumers
- regulator might be ‘behind the curve’ with new technologies
When does regulatory failure occur
When intervention in markets is either ineffective in meeting the stated aims or can even lead to a deeper and more persistent market failure than existed previously
What is regulatory capture
Regulators are dependent on the utilities for the information on costs, and end up being overly sympathetic to those utilities.
Concept of regulatory capture
A type of government failure where a regulator fails to protect the interests of the consumer and instead supports behaviour by the firms it regulates
Examples of regulatory capture
The UK energy market
