Public interest theory

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Public interest theory is an economic theory holding that regulation is supplied in response to the demand of the public for the correction of inefficient or inequitable market practices. Regulation is assumed initially to benefit society as a whole rather than particular vested interests. The regulatory body is considered to represent the interest of the society in which it operates rather than the private interests of the regulators.

[edit] Assumptions

This theory assumes that economic markets are extremely fragile and apt to operate very inefficiently (or inequitably) if left alone. The government regulation is virtually costless. The government is assumed to be a neutral arbiter.

[edit] Criticisms

Critics believe this will only occur when the public demands a better allocative efficiency. Most legislatures do things to benefit themselves, not the public. Therefore their must be an interest of law-makers for regulation to occur. This "theory" has no testable predictions or outcomes, therefore it is viewed by many as not a real theory.

[edit] References

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