Summary: Lecture Regulation I: Economic Perspective

Read the summary and the most important questions on Lecture Regulation I: economic perspective

• 1 Lectures week 1

• 1.1 Regulation I: Economic perspective

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• What does field of economics related to regulation focus on?

  How government intervention can remedy shortcomings of markets from perspective of society as a whole, but analyses often focused on specific market

• What is static efficiency?

  • State of technology is fixed or given (innovation abstracted)
    
  • goods end up in hands of people who value them the most
  • no wasted opportunities

• What is dynamic efficiency?

  Takes technological change and innovation into account. 
  "capability of markets or of other institutional arrangements, to promote new technology that lowers cost, improves product quality, or creates new and marketable products, and to promote these things at lower costs than other ways of doing them"

• What is pareto efficiency?

  
  Resources are allocated such that it is impossible to make any one individual better off without making at least one individual worse off

• 1.2 Regulation I: Market failures

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• Why do economist view market failures as a justification for governmental intervention?

  1. market processes (in particular competition) are default for allocating scarce resources, public policy can then correct/ adjust the market outcome 
  (assumption: policy makers have appropriate incentives and accurate information)

• What are the types of market failures?

  1. Externalities and public goods
  2. Increasing returns
  3. Market imperfections
  4. Distributional inequity (income and wealth)

• What interventions are there for goods with externalities?

  1. Taxes and subsidies --> incentivize
  (stimulate production of merit goods and make demerit goods more expensive)
  2. Coercion (if incentivizing does not help)
  (mandating consumption of merit goods and forbidding consumption of demerit goods)

• What are public goods?

  Goods which are not reduced in availability when consumed (non-rival)and which can be used by everyone (exclusion is not possible = non-excludable)

• What are increasing returns?

  When there are high fixed costs. Cost efficiency can be obtained through economies of scale. Thus less firms means a higher cost efficiency. But a less firms, means more market power and this harms consumers (allocative and dynamic efficiency)

• How to obtain cost efficiency and prevent a dominant position.

  1. Public utilities: regulating prices 
  2. Prevent mergers and acquisitions that would lead to a monopoly: antitrust legislation