One of the biggest challenges to social conduct is to elaborate the design of state intervention in the industry – what is known as ‘economic regulation. Clearly explained, the phrase relates to subsidies and taxes of all types as well as to clear legal and managerial regulations over entry, rates, along with other forms of economic performance. Two major assumptions of economic regulation have been offered. One is the interest theory, handed down by a past group of economists to the current generation of legal advisers.
The interest theory refers that regulation is offered in reaction to the requirement of the public for the removal of inadequate or unbalanced industry activities. This essay will explain the interest theory, the role and motivation of regulators (politicians). Along with that, a given article will be reviewed holding a position to explain an individual perception.
The interest theory of public regulation sustains that politicians or regulators try to locate industry resolutions that are financially competent. It discusses that the industry authority of companies in faultily competitive market areas must be regulated. In the example of natural dominations, regulation is perceived as important to decrease prices and augment outcome. In the example of oligopolistic markets, regulation is mostly supported to protect aggressive competition. The interest theory of regulation sustains that companies must have to control in order to assure the accessibility of specific services and products-like medical provisions, electricity, or communication service facilities-that would not be productive enough to stimulate unregulated companies to offer them in a specific sector otherwise. Companies offering such services and products are mostly granted franchises and permissions that protect competition in the market (Posner, 1974). The regulatory body permits the company to determine prices above standard cost within the protected market for the aim to overcome losses in the target group. This manner, the companies are permitted to earn, certainly are assured, a reasonable overall return ratio (Mourik and Walton, 2013).