Theories of Regulation Flashcards
(13 cards)
What does Peltzman (1976) do?
Introduces the policy dimension to regulation, says that regulation serves the legislator/politician to secure political support.
What are assumptions to the Peltzman theory?
Legislation serves to redistribute wealth
Legislator seeks too remain in office by introducing legislation that maximises likelihood to be re-elected
Interest groups compete by offering political support for favourable legislation/regulation
What is the trade-off legislators face using the Peltzman theory?
Consumers want lower P
Producers want higher π
Draw a graph showing the iso-political support curves for the Peltzman theory
check ppt 18
Show the optimal price for the legislator on iso-support curves using Pletzman theory
check ppt 19
Show how regulation can be captured by consumers and the industry graphically.
check ppt 20
What are some predictions of the Peltzman model?
Regulation will generally not maximise industry profit
What does the Becker model of regulation state?
Competition between two interest groups, regulation serves to increase the welfare of the most influential interest group.
What are the assumptions of the Becker model of regulation?
two interest groups: group 1 and group 2
favourable legislation increases a groups wealth transfer T
groups (1) transfer depends on the pressure (r1) it exerts and pressure of other group (r2)
How do interest groups choose pressure level?
To maximise welfare given r2
If deadweight loss (x) increases how does it shift the best reply function?
It shifts higher meaning higher pressure (lobbying)
Draw a bets reply function graph
check ppt 21
What are predictions of the Becker model?
Optimal pressure depends on other groups pressure
Political equilibrium is not pareto efficient ( same relative influence could be achieved with lower costly pressure)
