ECONOMICS

Economics

Economics

Industrial regulation

The term industrial regulation corresponds to the government intervention in the business decisions of firms, as defined in Howe (2002) and Jean-Baptiste (2003). It can affect prices, the number and identity of firms, the level of investment and capital structure, and the availability and configuration of products among other decisions (Howe, 2002).

The economic rationale for industrial regulation is common with other forms of government intervention: the failure of the conditions for efficiency of market equilibrium. This failure can justify the actions of the government to attain a second best level of welfare, as presented in Jean-Baptiste (2003). Industrial regulation has also distinctive characteristics with respect to other government interventions. In particular, it presupposes the existence of market failure, and it acts preemptively versus reactive interventions such as antitrust regulation.

A more specific justification of industrial regulation is the characterization of an industry as a natural monopoly in which a single firm can produce at a lower cost than a combination of firms. A regulated monopoly can then potentially attain productive efficiency without introducing monopolistic pricing distortions. Gilbert (1994) is the classical example of second best pricing in a public monopoly, a problem closely related to the work of Gilbert (1994) in optimal taxation (Gilbert and Newbery 1994).

The economic literature has also considered the possibility that regulators have objectives different from second best welfare optimization. The Private-Interest Theory of Regulation, as in Jean-Baptiste ( 2003), argues that the regulator serves its own interest, and it is subject to capture by pressure groups. This regulator will not seek to maximize total welfare but rather its own welfare or that of the groups with interests closer to its own. The evaluation of industrial regulation requires empirical methods to determine whether the objectives of actual regulators are consistent with second-best welfare maximization (Paul, 2001).

(Please, see the appendix…)Social Regulation

Government-imposed restrictions designed to discourage or prohibit harmful corporate behavior (such as polluting the environment or putting workers in dangerous work situations) or to encourage behavior deemed socially desirable. The industrial regulatory effects may affect the industrial safety, health, environment, production, prices and employment (Howe, 2002). There are number of aspects of industrial-regulation for maintaining health, safety and environment like technological, law and orders. For the understanding of ensure compliance and regulation, industry needs to be served as a primary interface with agencies of government. Technical coordination, input and support are based to maintain environment, safety and health, if any discrepancy occurs, it may have a worst affect on processes and procedures of industry. Manufacturing industries' regulation is core to run their business because they have chronic affects on the health of employees as well as other people. Government is responsible to impose such policies that have to be followed by industries for protecting others' lives (Jean-Baptiste and Riordan, 2003).

Four major pieces of legislation collectively known as the Antitrust Laws.

Antitrust Laws are sets of laws that prevent monopolies behavior. Antitrust Laws cover both business and individual monopolies. The aim of these laws is that to create a health market ...