Tools of Government Tools of Government Laws Regulations

Tools of Government

Tools of Government

Laws & Regulations Government Action via Rules

Laws & Regulation • Government Rules prescribe/proscribe specific behavior – “…there ought to be a law against that sort of thing…” – instruct the public what is correct or incorrect – Set societal standards

Laws & Regulation • Social Regulation – Categorize behavior: acceptable vs. not acceptable • Criminalize unacceptable behavior • Prohibitory policy – Define groups • Regulated, unregulated • Harmed, unharmed

Enforcement • Legitimacy affects compliance • Enforcement Agents – Capacity to monitor behavior of regulated groups – Sanctions invoked when “line has been crossed” – Use of discretion when situation does not fit the rules • Criminal Penalties

Issues • Precision vs. flexibility – Discretion • Information needs • Perverse incentives • Sanctions for compliance failure

“Good Things” about Regulation • Sets a clear line for acceptable behavior • Within the regulated group everyone is treated the same

“Bad Things” about Regulation • Inefficient economically – High transaction costs – High information & enforcement costs • Within the regulated group everyone is treated the same • Perverse incentives

Incentives Governance by Rewards & Sanctions

Incentives • Using rewards & sanctions to – Encourage desirable behavior – Discourage undesirable behavior • Tax Incentives – Tax breaks – Additional Taxes • Subsides • Regulatory Protection – Exemptions from certain laws/regulations • Licensed monopolies (public service utilities) – Liability limits

Issues • Determining the “tipping point” – Target’s cost-benefit neutral point

“Good Things” about Incentives • More “economically efficient” than regulation – Should have lower transaction costs • Less heavy-handed than regulation – Allows for choice • Self-complying (enforcing)

“Bad Things” about Incentives • Legitimizes socially unacceptable behavior – Sends mixed signal – Rewards for not doing bad things • May allow the wealthy the impose social harms while the less wealthy bear the burden – Pollution taxes • Rewards economic inefficiency – subsides • May not produce an effective reduction in the problem

Case: Regulating the New Economy

What is the Problem? • Threat of a cyber-attack • “Gap” in Internet access (broadband services) between rich a poor • Government’s capacity to monitor communications traffic of criminals/terrorists • Nurturing Internet Commerce • Cyber-crime

Questions • Given these “problems, ” who has a stake in telecommunications policy? – Are all players concerned with all aspects of the policy? • How do each of the contending parties framing the problem? • How do they attempt to influence government decision-making?

Threat of Cyber-Attack • Solutions – Greater collaboration among telecommunications industry • Tradeoffs – Weakened anti-trust protections

“Gap” in Internet Access • Solution 1 – De-regulate intrastate phone carriers • Solution 2 – Government mandate for access (regulate) • Solution 3 – Government subsides for access • Tradeoff 1 – Monopoly dominance of telecommunications within states • Tradeoff 2 – Huge increase in service costs • Tradeoff 3 – market distortions & cost of subsides

Government Surveillance Capacity • Solutions – Rules requiring government access to accounts – Rules requiring monitoring technologies in hardware – Rules requiring encryption back doors in software • Tradeoffs – Privacy – “Big Brother” government

Nurturing Internet Commerce • Solution 1 – Leave it alone • Solution 2 – Regulate for fraud but do not tax commerce • Tradeoff 1 – Cyber-crime – Lost tax revenue • Tradeoff 2 – Lost tax revenue