Business Government Relations Midterm

Front 1

Ideal Market Outcomes

Back 1

When the sum of consumer surplus and producer surplus is maximized

Front 2

Market Failures

Back 2

-Market Power (Monopoly)
-Externality
-Information Asymmetry

Front 3

Alternative Approaches to Correct Market Failure

Back 3

Command and Control Regulations
Incentive-Compatible Regulations

Front 4

Market Power

Back 4

The ability to price higher than marginal cost

Front 5

Monopoly

Back 5

In a competitive market, marginal cost is equal to price. When market power exists, companies can charge a price higher than marginal cost. Profit Maximization exists when Marginal Revenue=Marginal Cost, but in a Monopoly, Marginal revenue is less than price

Front 6

Correcting the Monopoly Problems

Back 6

Command and Control
-Price Cap, Blocking Mergers

Incentive Based Solutions
-Financial Incentives
-Lowering Barriers to Entry

Front 7

Externality

Back 7

Non financial cost
Indirect costs
When firms are forced to pay for externalities the supply curve moves to the right and prices increase

Front 8

Coase Theorem

Back 8

Regardless of who is at fault, the entity that pays less to correct a wrong should be the one who pays for it, not necessarily the entity that causes the harm

Front 9

Information Asymmetry

Back 9

If positive information is missing: under provision of the good

If negative information is missing: over provision of the good

Front 10

Four Stages of Public Issue Life Cycle

Back 10

-Development
-Politicization
-Legislation
-Implementation

Front 11

Development Stage of the Public Issues Life Cycle

Back 11

-Dramatic Events
-Persistent frictions among different groups
-Effort of Policy Entrepreneures

Front 12

Politicization Stage of the Public Issues Life Cycle
(Wilson-Lowi Matrix)

Back 12

Interest Group Politics
-Concentrated Benefits, Concentrated Harm

Entrepreneurial Politics
-Widely Distributed Benefits, Concentrated Harm

Client Politics
-Concentrated Benefits, Widely Distributed Harm

Majoritarian Politics
-Widely Spread Benefits, Widely Distributed Harm

Hint 12

-0

Front 13

The Iron Triangle

Back 13

Congress, Intrest Groups, Bureaucracy

Front 14

Policy Implementation Stage of the Public Issues Life Cycle

Back 14

-Regulatory Agencies' Rule Making
-Regulatory Agency v. Other Stakeholds
-At this point, very little change takes palce

Front 15

Rational Ignorance

Back 15

When it is rational for people to discard and issue and remain ignorant about it

Front 16

Median Voter Theorem

Back 16

Far left and far right politicians often address the policy of median voters to win over their votes

Front 17

Tyranny of the Majority

Back 17

Majority is not always perfect and should therefore be limited

Front 18

Minority Rights

Back 18

Pure democracy does not allow for minority rights

Front 19

Keynesian

Back 19

We need government intervention for the market to function properly

Front 20

Chicogon

Back 20

Government intervention disrupts the market

Front 21

The Cost of Regulation

Back 21

Direct Costs
-Regulatory Agencies
-Private Sector Costs

Indirect Costs
-Consumers face higher prices

Unintended Side Effects
-Demonstration

Front 22

Optimal Risk Choice

Back 22

The intersection of the marginal benefit and marginal risk curves

Front 23

Cost-Effectiveness Analysis

Back 23

Compare costs associated with different methods of saving lives and pick the cheapest

Front 24

Voluntary Regulation

Back 24

Carrots rather than sticks
Companies are incentivised to build public image

Front 25

Government Initiated Voluntary Regulation

Back 25

Voluntary regulations often lead to companies engaging in selective disclosure

Front 26

Private Sector Initiated Voluntary Regulation

Back 26

Helps companies build relationships with regulatory agencies

Front 27

Self-Provided Information

Back 27

-The most important source of consumer information
-One-sided
-Selective Disclosure

Front 28

Unfolding Principle

Back 28

If you have less negative aspects than your competitors, you are incentivised to disclose some of your negative information

Front 29

Cost of Information

Back 29

Information overload

If the government requires certain information from companies then the companies focus on that specific information and ignores the rest

Front 30

Effects of Advertising

Back 30

Improves product quality

Less discrepancy by demographics

Front 31

Command and Control Environmental Regulations

Back 31

Emission Limits

Government Requiring companies to install best available technology

Front 32

Incentive Compatible Environmental Regulations

Back 32

Information Disclosure Requirements

Emissions Trading

Front 33

Renewable Portfolio Standards

Back 33

(Command and Control)
You have ti generate 20% of your profit from renewable sources

Front 34

Financial Incentives for Renewable Electricity Policy

Back 34

Tax Credits
Grants
Low-Interest Loans
Production Incentives

Front 35

Regulatory Capture

Back 35

Some regulations do not fix market failure but instead allow companies make higher profits than they would otherwise