Theories of Economic Regulation

A) Let us assume that the government has become concerned that existing disclosure regulation tends to fixate on the financial performance of organisations but fails to address other aspects of corporate performance, including a failure to provide information about corporate social and environmental impacts as well as about various initiative and investments an organisation has undertaken to improve its social and environmental performance. As such, the government has decided to introduce legislation that will require business corporations to provide information about the social and environmental impacts of their operations, as well as the social and environmental initiatives undertaken by the corporations. You are required to do followings:

1) Explain from public interest theory perspective that rationale for the government introducing the legislation and how the government will ultimately assess whether any proposed legislation should actually be introduced.

What we understand from public interest theory is that it is a theory of economic regulation that is created due to public demand to achieve desired results. The markets cannot regulate themselves, thus the government must take certain steps to regulate markets and to correct the inefficiencies of the market and inequitable practices which can be seen as the accounting inconsistencies between two firms. Government intervention is in the best interest of the public. Some of the activities of the government in the matter of public interest are national defense, legal institutions, roads & canals, education and other city services on one side as against economic regulations and social & environmental regulations on the other. Economic regulations include ensuring a fair market conditions and at the same time, seeing to it that information about the financial position of the company is known to the public. Social & environmental regulations include regulations on child labour, human & animal rights, etc....