Two Assumptions Of The Public Interest Theory

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Register to read the introduction… Posner (1974, cited in Hantke-Domas 2003) recognised two assumptions regarding the public interest theory. One, that markets will likely fail if left alone and two, that the cost of government regulation is zero. Furthermore, Uche (2001) explains that regulation is often supplied in demand from the public for the amendment of inefficient or inequitable markets and business practices. The public interest theory assumption is that if left alone the markets will not always function in the public interest and therefore, supervision or control is necessary. Uche (2001) maintains that regulation in the past and even today has almost always followed a crisis or public discord. An example of this is reflected in the changes in company legislation and accounting and auditing regulations after the recent collapses in the corporate world of a number of companies, those including Enron, HIH Insurance and One. Tel. (Gay & Simnett 2007). The public interest theory suggests that regulation is put in place by the regulatory body to protect the interests of the public rather than private interests of the regulators or the industry (Uche 2001). According to a study into the deregulation of the airline industry by Vetsuypens and Helmuth (1988) …show more content…
The economic assumption is that people will seek to advance their own self-interest above any others and will do so rationally (Deegan 2006). For example, Levine (2006) states that airline regulation has often been used as a good example of economic interest theory. The airline industry was a competitive industry which was subjected to price and entry regulation which raised the fares and declined the service. This benefited the labour unions and suppliers at the expense of the travelling …show more content…
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