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Concept
Regulatory economics
Summary
Regulatory economics is the application of law by government or regulatory agencies for various economics-related purposes, including remedying market failure, protecting the environment and economic management.
Regulation is generally defined as legislation imposed by a government on individuals and private sector firms in order to regulate and modify economic behaviors. Conflict can occur between public services and commercial procedures (e.g. maximizing profit), the interests of the people using these services (see market failure), and also the interests of those not directly involved in transactions (externalities). Most governments, therefore, have some form of control or regulation to manage these possible conflicts. The ideal goal of economic regulation is to ensure the delivery of a safe and appropriate service, while not discouraging the effective functioning and development of businesses.
For example, in most countries, regulation controls the sale and consumption of alcohol and prescription drugs, as well as the food business, provision of personal or residential care, public transport, construction, film and TV, etc. Monopolies, especially those that are difficult to abolish (natural monopoly), are often regulated. The financial sector is also highly regulated.
Regulation can have several elements:
Public statutes, standards, or statements of expectations;
A registration or licensing process to approve and permit the operation of a service, usually by a named organization or person;
An inspection process or other form of ensuring standard compliance, including reporting and management of non-compliance with these standards; or
The setting of price controls in the form of price-cap regulation or rate-of-return regulation, especially for natural monopolies.
Where there is non-compliance, this can result in:
Financial penalties; or
A de-licensing process through which an organization or person, if judged to be operating unsafely, is ordered to stop or suffer a penalty.
Official source
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