Account Theroy Essay

607 Words May 12th, 2014 3 Pages
Economic Interest Theory and Regulation
The theory suggests that regulations are set of policies driven by forces of supply and demand. The government is placed on the supply side while the interest groups on the demand side. The theory suggests that regulation is developed by the industry and that the objective of regulations is to create advantages to the industry concerned. This theory was developed in 1971 by Chicago theory of government and the economic theory of regulation (J. G. Stigler, The Theory of economic regulation, n.d. pg 4).

Characteristics of economic interest theory
The theory suggests that it is the industry which designs the regulations to be adopted in the market. The industry sets the regulations for the benefit
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The theory allows political decision making concerning the industry to be done by the industry instead of an individual. This helps reduce time, energy and money. The industry should be involved in the governmental decision making on economic matters that affect the industry (A. Etzioni, The Capture Theory of Regulations, pg 321).

The theory is able to predict the benefits to be achieved from the regulations. The benefits can be direct through subsidies or indirectly through prices, quotas, or restrictions to market entry.

Disadvantages of economic interest theory
The idea of using representative groups to regulate the industry and the economic activities in a country may favor some groups more than the others. For example, the policy to have uniform prices for basic items created more advantage to some groups than to others. The production costs may be different in different geographical areas. This may create greater profits to some industries than others (M. J. R. Gaffikin, Regulation as an Accounting Theory, 2009, para15).

The politicians are not predictable since they put regulations for their own advantage. They may support the private sector for their own interests. Politicians can suppress some groups in the decision making process and this would discourage proper decisions about the regulatory measures to adopt. Politicians also seek political support from these groups and may favor the decisions of the

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