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Control of entry and exit

l Regulators try to control the number of firms in the industry.

Entry regulation:

l entry by new firms may be controlled (public utilities)

l entry by existing regulated firms.

l Exit is forbidden without government permission.

 

 

9chapter

An industry is a natural monopoly if the production of a particular good or service by a single firm minimizes cost.

The firm can supply a good or service to the entire market at a smaller cost than two or more firms could do.

Various alternatives were proposed to correct the natural monopoly inefficiency:

Doing nothing

Ideal pricing solution

Competition among bidders for the right to the monopoly franchise

Actual regulation

Public enterprise

Ideal – operating in public interest

Linear pricing implies buyers pay a single price for unit of consumption.

Non linear pricing – two-part tariff, which consists of fixed amount of fee + a price per unit

Rate Regulation

Socially Optimum Price

P = MC

Fair-Return Price

P = ATC

Dilemma of Regulation

Public enterprise – government ownership or operation of the monopoly.

Supervisory functions

1) control over activities of subjects of natural monopolies with respect to compliance with the legislation;

2) Conducting inspections of activities of subjects of natural monopolies;

3) examination of cases on administrative violations of the legislation of the RK On natural monopolies at its own initiative on the basis of messages from mass media, on the basis of written statements and messages from state bodies, individuals and legal entities;

4) issuance of instructions in case of violation of the legislation of the Republic of Kazakhstan;

5) license control;

The following serves as grounds to conduct ad hoc inspections of natural monopolies :

1) confirmed facts presented in messages from individuals and/or legal entities;

2) information from state bodies;

3) messages from law enforcement bodies;

4) joint inspections with other state bodies;

5) own initiative of the authorized body;

6) messages in mass media.

The regulatory body examines cases on administra-tive violations of the legislation of the RK:

Upon its own initiative

On the basis of information from mass media

Other materials that are at its disposal, on the basis of written applications and messages from state bodies, individuals and legal entities

11chapter

Two alternative policies to induce the firm to price in a socially efficient manner:

To establish a regulatory agency that sets price and constrains the firm to earn a normal rate of return

The problems with this approach are:

The regulatory agency lacks the necessary information to make effective pricing decisions;

The profit constraint may lead the regulated firm to produce inefficiently

- a reduced incentive to adopt cost-reducing innovations, as additional profits earned cannot be fully retained by the firm

To auction off a franchise to the firm that proposes the lowest price for service



- ideally, this scheme solves all problems because the franchise owner has every incentive to produce efficiently and competition at the bidding stage results in socially optimal pricing

Franchise bidding – issuing the franchise to the firm that proposes the lowest price for service while meeting certain criteria concerning quality of service

It substitutes competition at the bidding stage for regulation

Prices are fixed è incentives to be efficient

If no active competition at renewal time, society may eventually face with a traditional problem of regulation

How to measure the performance of a public enterprise:

Price

Attributes of output (e.g. reliability of the service provided, an electric utility without blackout

The reason why public firms discriminate less:

More uniform pricing schedules reduce the alienation of consumer groups ans this tends to increase political support

Easier to handle

12chapter

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.

Agencies: Environmental Protection Agency, Consumer Product Safety Commission, Occupational Health and Safety Administration, Nuclear Regulatory Committee,

1. Externalities and public goods

2. Value of Life

3. Environmental Regulation

4. National Markets for Clean Air

5. Workplace safety

6. Regulation of Pharmaceuticals

7. others

An externality exists when one or more economic agents undertake an activity that affects the welfare of other economic agents.

 

Result: markets with externalities are no longer efficient and government regulation is required.

Potential Solutions to Externalities

1.Complete Prohibition.

2.Command and Control (e.g. nuclear radiation).

3.Taxes and subsidies

(e.g. landfill waste)

4.Direct action/government ownership.

Solutions to Free Riding

Government provision. However how does the government decide to produce public goods.

Local government may be better at knowing local preferences for local public goods.

Marginal-cost-marginal-benefit rule

Allocate government resources to maximize net benefit

Social regulation in Kazakhstan

Social regulation deals with issues of unemployment, social protection of society, environmental pollution, health and safety of population

Agencies: Ministry of labor and social protection, Ministry of Environment Protection, State National Center for payment of pensions, etc

Unemployment is the failure to use all available economic resources to produce desired goods and services; the failure of economy to fully employ its labor force.

Unemployment rate is the percentage of labor force unemployed at any time

13chapter

Effective environmental regulation is integral to successful markets, an essential ingredient of a modern economy.

Unregulated markets would be chaotic, unfair and unlikely to deliver what people want – safe, reliable products and a clean environment in which to live and work

Basic regulatory instruments

Command and Control

Economic Incentives

Taxes (fees)

Subsidies

Liability

Permits

At the local level an akimats and Oblast Departments of the Ministry perform the environmental management functions.

The Committee for Forestry, Fishing and Hunting of the Ministry of Natural Resources and Environmental Protection

The RK Agency on Land Resource Management of the Ministry of Natural Resources and Environmental Protection

The Committee for Water Resource of the Ministry of Ministry of Natural Resources and Environmental Protection

The Committee for Geology and Mineral Resources Conservation of the Ministry of Natural Resources and Environmental Protection.

 

14chapter

The producer’s environment is governed by three sets of influences:

The market through consumer behavior

Government regulation

through design standards that influence the technology or by addressing observed product defects

Tort liability

Operates ex post facto

Main mechanisms influencing Product safety

Consumer’s potential for muting safety device benefits

The “Lulling effect”

Effect of consumer’s perception on safety device efficacy

A group-based pricing

Such a group-based pricing provides a disincentive for firms at the high end of the market

because their safety efforts will not be rewarded.

They will be sharing the benefits of safety with all of the other firms in the market

Economic mechanisms:

Providing warranties

Informational efforts such as ratings provided by government agencies and by consumer groups

ISO

ISO has developed over 19 000 International Standards on a variety of subjects and more than 1000 new ISO standards are published every year.

ISO 14001:2004 Environmental management systems

ISO 26000:2010 Guidance on social responsibility

ISO 31000:2009 Risk management -- Principles and guidelines

ISO 9001:2008 Quality management systems

ISO 9001 and ISO 14001 are among ISO's most well known standards ever.

They are implemented by more than a millionorganizations in some 175 countries.

ISO 9001 helps organizations to implement quality management.

ISO 14001 helps organizations to implement environmental management.

ISO 9001 is for quality management.

Quality refers to all those features of a product (or service) which are required by the customer.

Quality managementmeans what the organization does to

ensure that its products or services satisfy the customer's quality requirements and

comply with any regulations applicable to those products or services.

Quality management also means what the organization does to

enhance customer satisfaction, and

achieve continual improvement of its performance.

ISO 14001 is for environmental management. This means what the organization does to:

minimize harmful effects on the environment caused by its activities,

to conform to applicable regulatory requirements, and to

achieve continual improvement of its environmental performance.

ISO 9001 and ISO 14001 are generic standards.

Generic means that the same standards can be applied:

to any organization, large or small, whatever its product or service,

in any sector of activity, and

whether it is a business enterprise, a public administration, or a government department.

Management systemmeanswhat the organization does to manage its processes, or activities in order that

its products or services meet the organization’s objectives, such as

satisfying the customer's quality requirements,

complying to regulations, or

meeting environmental objectives

ISO 9001 gives the requirements for what the organization must do to manage processes affecting quality of its products and services.


Date: 2015-12-17; view: 896


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