The Concept of and Need for Regulation
The Concept of Regulation
Generally speaking, regulation is “designed to facilitate the development of competitive markets and achieve social and public goals” (Akisik 2013, 33). Such goals are enforcement of competition laws, environmental protection, workers’ and consumers’ rights protection, as well as accounting and auditing rules (Graham and Woods 2006).11
Lax regulation of the financial markets as a major cause of the financial crisis has already been mentioned.12 Regulation13 can generally be defined as rules designed to control human behavior (Liou 2013, 216). It has also been defined as “the diverse set of instruments by which governments set requirements on enterprises and citizens” (Organization for Economic Cooperation and Development 1999, 16). Meier (1985) proposed that the term regulation be used to mean “any attempt by the government to control the behavior of citizens, corporations or sub-government” (p. 1). For their part, Baldwin, Scott, and Hood (1998) argued that regulation has three senses: (a) a binding set of rules; (b) state actions to influence industrial or social behavior; and (c) state- or market-based mechanisms.
As far as regulatory instruments or strategies designed for their implementation are concerned, Liou (2013, 216—217) lists the following by category:
- 1. State-derived or government-oriented strategies, which include the following approaches: (i) command and control (e.g., as in public health and public safety), (ii) the mandatory disclosure (e.g., as in drinks, food, and drugs), and (iii) the requirement of public compensation and social insurance (e.g., as in workplace safety).
- 2. Market-based strategies, which include the following approaches: (i) selfregulation (e.g., with the insurance industry), (ii) the incentives approach (e.g., offering differentiating taxes by different product as in the case of unleaded fuel), and (iii) the market-harnessing controls approach (e.g., to ensure competition, as in the airline industry).