Private Interest Theory Research Articles

Explaining mobilization for revolts by private interests and kinship relations.

Mobilization for revolts poses a significant challenge for rational choice theory because revolts are vulnerable to free-riding, which disincentivizes rational actors from mobilizing. Strong, informal relations such as kinship ties have been identified as factors that can shift the rational calculations of individuals and lead to mobilization for revolts. In social networks that are polarized by the presence of mobilized individuals, such as rebels, and actors opposing the mobilization effort such as the elite, kinship relations have not only a bridging effect but also a diverging one. Building on Tullock's private interest theory, we develop a framework in which kinship relations determine the extent of individual's payoffs and costs of mobilization for revolts against an elite. We posit that distant kin of the elite expect high payoffs of mobilization for revolts and face the lowest costs of mobilization for revolts by virtue of their position in the network of kinship relations. Using a unique, hand-collected dataset that reconstructs a revolt in Basel, Switzerland, in 1691, we test our framework and contribute to a better relational understanding of the mechanisms that lead rational actors to mobilize for revolts. Our analyses show that mobilization for revolts is mainly driven by distant kinship relations to the ruling elite rather than close kinship relations to the rebels.

Fintech Credit in Kenya: The Case for Strategic Regulation

The study sought to present the case for strategic regulation in the Fintech Sector, specifically in digital credit, with reference to Kenya. This was based on the concern that the proposed regulation on Fintech Credit by the Kenyan Parliament and the Government of Kenya does not factor in the sustainability aspects of Fintech Credit businesses. The study is anchored on the Public Interest Theory, the Private Interest Theory, and the Economic Theory of Regulation. The study adopted desk research, which depended on the review and examination of primary data sources such as legislation, government policy documents, acts of parliament, and reports. The study sought to achieve its objectives by evaluating the current laws and regulations affecting mobile lending in Kenya. It then relied on a comparison with two jurisdictions, specifically India and USA, where one has an existing mobile lending regulatory framework, and the other has a general regulatory framework respectively. It was established that the proposed regulations have a bias toward consumer protection and do not focus on business sustainability. The study, therefore, concluded that one single regulatory framework or laws will be insufficient for a sector where the laws in place will always be one step behind innovation in Fintech credit, and observed the need for a strategic approach to the regulation of Fintech credit in Kenya. It was recommended that, Fintech credit regulation in Kenya ought to incorporate a degree of flexibility. This flexibility is envisaged by Regtech, which takes care of new product-specific regulations. Secondly, regulators in Kenya should engage in Fintech Credit promotion by creating regulatory sandboxes. Sandboxes allow innovators to test their concepts in a deregulated environment that the rest of the market does not enjoy.

The pros and cons of rent-seeking: Political rent in various research paradigms

This article shows that how we look at political rent and rent-seeking depends on our position on state interference in the economy and which theory of regulation we are familiar with. Although the theory of rent-seeking is in accordance with the paradigm of the private interest (economic) theories of regulation, the researcher also needs an insight based on the public interest theories of regulation if he wants to judge the impact of rent-seeking and the creation of political rent on social well-being properly. The paper is also a conceptualization of political rent. It describes forms of rent-seeking and economic systems most amenable to it.

The Role of Regulation in Banking: Liquidity Risk Perspective

The liquidity crisis in 2008 sparked interest in the role of regulation that could promote resilience and stability in the banking system. While the Public Interest theory suggests that legal policies could discipline banking activities, the Private Interest theory predicts otherwise, which impairs banking performance. The conflicting theories warrant comprehensive research, especially for Islamic banks, as they emerge to gain their systemic importance. Given this, this study examines the role of banking regulation on liquidity risk management of banks in OIC countries from 2000 to 2014. The findings suggest that restrictions on banking activities and capital requirement pose a significant impact on liquidity risk. However, the marginal effect of regulatory capital is more pronounced in conventional banks compared to Islamic banks.

Mutual funds, tunneling and firm performance: evidence from China

In contrast to US companies, Chinese firms have concentrated ownership with the effect that the central agency problem emanates from controlling shareholders expropriating minority shareholders, a phenomenon referred to as ‘tunneling’. This study examines the monitoring effect of mutual funds on the tunneling behavior of controlling shareholders. Due to the distinctive institutional settings in China, including a high level of ownership concentration, underdeveloped legal system in the stock markets and weak governance mechanisms in the mutual fund industry, we find that an increase in mutual fund ownership effectively mitigates the tunneling behavior of controlling shareholders thus improving firm performance. Nonetheless, after the mutual fund ownership reaches a certain threshold, an increase in concentrated mutual fund ownership is associated with heavier tunneling and lower firm performance. This may suggest that concentrated mutual funds collude with controlling shareholders in order to preserve their private interests. Moreover, the above effects are found to be more pronounced for firms with heavier tunneling activities. Our finding of the non-monotonic monitoring role of mutual funds brings attention to the private interest theory for mutual funds, an aspect that has been largely ignored in previous studies on mutual funds.

A Critical Analysis on the Theories of Regulation

Regulation in general is literally defined as a form of government intervention in the economic activity and interference with the workings of the free-market system. According to certain views, regulation is “synonymous with government intervention in social and economic life”. Free marketeers do not like regulations because they do not like any form of intervention in which that is made by the government and prefer to feel the full power of the market. However, those who believe that the government intervention may be necessary, and then even such people should not be exposed to the full tyranny of the market on find regulation to be tolerable, even desirable. Majorly, three theories of regulation in which that is made and referred till now, as in which they are Public Interest Theory, Private Interest Theory and Institutional Theories as in which each theory flows and deals with different aspects in order to provide a proper regulation. And The current research focuses on the theories of regulation with regard to the satisfaction of the people, and the current issue analyzed with the help of Statistical Package for the Social Sciences, and it is used by various kinds of researchers for complex statistical data analysis in order to produce an appropriate and an unbiased result.

Deregulation of European Telecommunications: The Role of Private Interests

The large-scale reformation of various economic industries, which took place in developed countries at the end of the last century, is very oft en perceived as “liberalization” or “deregulation”. Meanwhile, there are robust reasons to argue that this terminology does not fit correctly the nature of the real transformation. Moreover, the newly formed system is often described in modern literature in such terms as “managed competition” or “regulatory capitalism”, and this system highly relies on various forms of government interventions in the market process, which makes the environment incompatible with the proclaimed values of neoliberalism. The analysis of the actual processes from the point of view of private interest theories of regulation allows one to conclude that the real objectives of the new regulatory environment were rather the suppression of market mechanisms and the curbing of the creative destruction process, than the development of market institutions as was proclaimed in the official documents. Moreover, it is important to take into account that the scientifi c discussion also off ered an alternative to the chosen methods. It could be based on the views of the Austrian school of economics, which understands competition in a diff erent manner than the neoclassical mainstream does. However, this alternative was widely ignored by the reformers. This study focuses on the European telecommunications sector. The history of its reformation allows one to see in details how, under the guise of market liberalization, the reforms created a new regulatory regime that was aimed at restriction of market forces. Th e research uses the approaches of the Austrian school, as well as those of the Virginia school of political economy which formed the main postulates of public choice theory, according to which government interventions are mainly explained by private interests of powerful actors.

Ownership, regulation, and financial disparity: The case of electricity distribution in Australia

Following electricity sector reforms in the late 1990s, prices charged by government-owned distributors in the south and eastern states of Australia more than doubled and the productivity of these government distributors declined. Econometric analysis associates much higher regulated revenues and regulated asset values with government-owned than investor-owned distributors. This disparity is not observed in other countries. Various commonly repeated explanations for higher distributor spending (stricter network planning standards, flawed regulatory rules, flawed appeal mechanisms, catch-up for historic underspending) do not seem to explain the disparity. This analysis suggests that owning governments perceive their cost of capital to be lower than that of their regulated private peers. The perceived premium encouraged government distributors to expand their asset base, and hence their prices and profits. The private-interest theory of regulation provides a plausible explanation for this.

Wind power development, government regulation structure, and vested interest groups: Analysis based on panel data of Province of China

Under pressure to reduce emissions and protect the environment, China has been vigorously promoting the development of renewable energy. In recent years, wind power generation in China has developed very quickly, but its overall use ratio is very low and there are still many obstacles impeding further development of wind power. Firstly, this paper systematically analyzes the relationship between different influencing factors of wind power growth, including the level of government regulation and the impact of vested interest groups, based on the private interest theory of government regulation. Secondly, we use panel data from 31 Chinese provinces to examine the theoretical assumptions. The results show that the delegation of approval authority led to the growth of regional wind power installed capacity. The influence on local government by the local thermal power industry exerted a negative impact on the development of local wind power when the local government held the approval authority. However, this influence relation disappeared when the central government held the approval power. Thus, the government needs to make a trade-off between different levels of approval authority. The paper concludes with several suggestions to promote China's wind power development.

Towards a New Era for the Legal Profession

The article discusses the regulatory trends and new challenges that the legal profession is currently facing in Europe. To show the complexity and specificity of the professional phenomenon, this article opens with an overview of the main dominant theory – constructions on professions in sociology – followed by analysis of the economic theories of regulation, with particular regards to the public interest and private interest theories. The analysis suggests that the lens through which the professions may be perceived can be different, if not opposite, and as a consequence, the rationale for professional services regulation might be very distant. Starting from the specific EU position towards the application of the competition law in the professional sector, this article provides a comparative analysis of the current legal profession regulations across Europe, considering rules affecting entry restrictions, as well as some restrictions on conduct. This article suggests that the European legal profession is gradually moving from a professional-independence approach to a consumer-centric perspective, even if several forms of alternative resistance are still in place, as the Italian experience shows. In view of the comparative analysis conducted, this article claims that the paradigm of professionalism is not condemned to succumb to commercialism; instead it seems to have hybridized its nature in favour of a new model of regulation, able to promote market competition and innovation without, however, renouncing professionalism and its core values.

Regulation, public interest, and private interest: an empirical investigation of firms in Japan

By using empirical methodology, this paper investigates to what extent the public interest and the private interest theories, respectively, explain the actual regulatory process. Our estimation findings are as follows: First, on average (whole industry basis), the explanation power of the public interest theory is about 46– 78%, while that of the private interest theory is about 22–54%. Second, the explanatory power of the public interest theory is higher in non-public utility industries, while that of the private interest theory is higher in public utility industries. This suggests that regulations on non-public utility industry are constructed largely with social welfare in mind, as assumed in conventional neoclassical welfare economics, but that those in the public utility industry tend to be captured largely by private groups, as assumed in private interest theory.

Broadcasting Regulation and the Public Interest

This study addresses the potential connection between media regulation and public interests. While investigating two Israeli media regulatory authorities, the study’s findings indicate that there is a difference between an Independent Regulatory Agency (IRA) and a governmental agency regarding the place of public interests and that both institutional and substantive consideration affect the extent to which public interests are the core of media regulatory policy. The study’s design and findings enhance the trend of bringing back the public interest theory to the center of media regulatory agenda on the expense of the competitive theory, the private interest theory.

The influence of the economic approaches to regulation on banking regulations: a short history of banking regulations

This article highlights the theoretical foundations of the regulations at work in the banking sector and examines their responsibility in the onset of the 2007–2008 financial crisis. Drawing a parallel between the main changes in banking regulations since the 1960s and the evolutions in the economic analyses of regulation over the same period, it shows that the shift from the public interest theory of regulation that prevailed until the late 1960s towards the private interest theory of regulation accounts for the substitution of micro-prudential regulations for macro-prudential ones and explains a paradigmatic change in the conception of the regulatory instruments of the banking authorities. It also shows that although the outcome of several factors, the 2007–2008 crisis was also a consequence of the fact that the economic analysis of banking regulations supported micro-prudential regulations that fail to take the global features and impact of banking activities into account and have proved unable to recommend effective solutions in a context of crisis.

Public-Interest Institutionalism

Two ongoing debates in regulation research concentrate on public-interest versus private-interest theories, and actor-centered theories versus institutionalism. The first controversy is about the origins and goals of regulation, and the latter is about the analysis of regulatory processes. A theoretical framework that combines these four concepts is suggested. Four patterns of regulation are presented; each addresses a regulatory goal as well as a regulatory process. Each pattern is associated with a different type of regulator: the selfish, the manipulative, the combative, and the coordinating. The author argues that by employing institutional considerations and tools, the coordinating regulator best serves the public interest.

What Drives States to Support Renewable Energy?

Why do states support electricity generation from renewable energy sources? Lyon/Yin (2010), Chandler (2009), and Huang et al. (2007) have answered this question for the adoption of renewable portfolio standards (RPS) at the U.S. state level. This article supplements their work by testing the core hypotheses on the EU27 sample between 1990 and 2010. Furthermore, the article asks why the majority of EU states rely on feed-in-tariffs (FIT). The study conducts logistic time series cross-section regression analyses that run on a hazard model. Evidence in support of private interest theory and public interest theory is provided. (a) The existence of a solar energy association increases the probability of a state to adopt regulation. (b) Solar radiation, and(c) the unemployment rate also increase the odds. (d) Electricity market concentration decreases the probability of transition.

The Politics of Bank No-Lending Activities Regulation: A Cross Country and Time Dynamic Study of the Role of Government and Private Industry Groups

I run a cross country study that narrows down the evidence in favor of the influence of industrial private interests on bank legislation, specifically bank non-lending activities like non-financial firm, insurance, real estate and securities activities entry. Building on the methodology proposed by Braun and Raddatz (2008) I find that industry promoters of financial development have a preference to restrict bank entry into non-lending activities, a result that is consistent with a bank power aversion flavor of private interest theory. Through the proposed methodology, I am also able to disentangle evidence supportive of tollbooth theory where governments restrict the law to generate opportunities for rent extraction. I also find some weak support for public interest theory and in various cases, governments that are perceived as of high regulatory quality, tend to resemble a flip flopping pattern of regulatory changes more consistent with tampering theory.As a whole, a puzzle emerges because current theoretical and empirical research suggests that financial development is favored by providing greater freedoms in bank-non lending activities, however, the private interest story suggest the opposite. As a possible resolution to the puzzle I suggest that the restrictions on bank non lending activities favored by industrial interests drive financial development only when they are supported by industries with external capital needs and with growth opportunities. Further, such beneficial impact from restrictions will become evident only under such specific conditions and on the longer term. However a more immediate and stronger impact on financial development is possible when control of government corruption improves and non lending activities such as non financial firm and insurance activities bank entry are freed.

An Introduction to the Law and Economics of Regulation

textabstractAbstract This chapter provides a general framework to analyze regulation with a law and economics approach. It introduces the volume “Regulation and Economics” of the second edition of the Encyclopedia of Law and Economics. This study intends to provide a state-of-the-art overview of regulatory economics. The editors review the traditional classifications and theories of social and economic regulation, emphasizing the limitations of these distinctions particularly in the perspective of the choice between liability and regulation. The chapter discusses both the public and the private interest theories of regulation and how they interact in various regulatory domains. The latter are divided in four categories: social regulation; regulation of public utilities; regulation of non-natural-monopolies, and regulation of professions. This introduction also summarizes the main findings of the 17 chapters on regulation included in the volume. The overall conclusion is that regulation involves a number of sector-specific issues. It is no longer possible to distinguish forms of regulation depending on the kind of market failure they are supposed to address, because in virtually every field regulation has to cope simultaneously with multiple market failures. The implication of this finding is twofold. On the one hand, the ability of regulation to effectively improve on market failure is impaired by the vested interests created by regulation. On the other hand, the actual outcomes of regulated markets depart significantly from the idealized world of perfect competition. The ‘Nirvana fallacy’ that still pervades the academic and the policy debate depends on the failure to acknowledge these circumstances.

An Introduction to the Law and Economics of Regulation

textabstractAbstract This chapter provides a general framework to analyze regulation with a law and economics approach. It introduces the volume “Regulation and Economics” of the second edition of the Encyclopedia of Law and Economics. This study intends to provide a state-of-the-art overview of regulatory economics. The editors review the traditional classifications and theories of social and economic regulation, emphasizing the limitations of these distinctions particularly in the perspective of the choice between liability and regulation. The chapter discusses both the public and the private interest theories of regulation and how they interact in various regulatory domains. The latter are divided in four categories: social regulation; regulation of public utilities; regulation of non-natural-monopolies, and regulation of professions. This introduction also summarizes the main findings of the 17 chapters on regulation included in the volume. The overall conclusion is that regulation involves a number of sector-specific issues. It is no longer possible to distinguish forms of regulation depending on the kind of market failure they are supposed to address, because in virtually every field regulation has to cope simultaneously with multiple market failures. The implication of this finding is twofold. On the one hand, the ability of regulation to effectively improve on market failure is impaired by the vested interests created by regulation. On the other hand, the actual outcomes of regulated markets depart significantly from the idealized world of perfect competition. The ‘Nirvana fallacy’ that still pervades the academic and the policy debate depends on the failure to acknowledge these circumstances.

Las teorías de la Regulación y Privatización de los Servicios Públicos

Este artículo examina el problema de la privatización de los servicios públicos domiciliarios desde las teorías del interés público y las teorías del interés privado. Cuando se aborda el análisis del problema, prevalece la concepción de racionalidad privada, perspectiva desde la cual se reduce a comparar la eficiencia pública contra la privada. La primera supone un crecimiento desmedido de la burocracia y problemas asociados con la falta de incentivos para los administradores públicos, argumentos que justifican en alguna medida la privatización. Al mismo tiempo se observa una relación crítica entre el sector público, el sector privado y algunos grupos políticos, por el juego de intereses que se crean en estas relaciones. Los procesos de privatización dejan entrever unas discusiones bastante interesantes tanto desde el punto de vista teórico como práctico. La teoría presupone que los procesos de privatización hacen más eficiente (y más competitivo) la prestación de los servicios públicos y habría asimismo una ganancia en la asignación global de los recursos. En la práctica, el papel de los grupos de presión es decisivo en sus resultados y no en todos las casos significa una ganancia en eficiencia ni en productividad

Regulatory Sanctions: Wheel-Clamping and Hassle

In England and Wales wheel-clamping has been considered to be increasingly effective in relation to evasion of vehicle excise duty but its use and popularity have declined in relation to illegal parking. To explain and evaluate this contrasting experience, I adopt an analytical framework based on the economic theory of deterrence. I indicate how in some circumstances conventional financial penalties provide inadequate deterrence and drawing particularly on insights generated by behavioural law and economics how sanctions involving inconvenience and hassle may provide a solution. Applying this analysis, I explain how wheel-clamping may be justified for excise duty evasion, but not for illegal parking. Added support for this conclusion is provided by private interest theory.