Private interest theory of accounting regulation

Hence they have to please these economic groups because they are the people who control the economy. If these members of the agency work in favor of the industry they get highly paid in future from the industry when they join it or rejoin it.

The industry should be involved in the governmental decision making on economic matters that affect the industry A.

Public interest theory

Now after clarifying the rationale of introducing the legislation the questions comes whether the proposed legislation should be introduced.

General Theories of Regulation,pg Politicians can suppress some groups in the decision making process and this would discourage proper decisions about the regulatory measures to adopt.

The benefits of proposed regulations can be measured in two ways by cost-benefit analysis. Hertog, General Theories of Regulation,pg. The production costs may be different in different geographical areas.

For instance, a government agency is established at state level to regulate the cotton die industry and protect the society from its adverse impact.

Advantages of economic interest theory The industry concerned is allowed to make its own rules and regulations. The theory suggests that over a given period of time regulations serve the interests of the industries concerned.

For example, the government can grant subsidies to an industry so as to increase prices A. The ideology that the government agencies established in the country to regulate the industry in the best interest of the society but in practice they work in the interest of the industry in which they regulate.

This theory was prevalent, especially during the New Deal progressive era, as stated above, starting the s, economists of the Chicago school began critiquing the assumption of benevolent regulators, proposing counter theories, like the Public choice theorywhich is based on personal-interests of agents.

Etzioni, The Capture Theory of Regulations, pg The theory suggests that producers can organize themselves more readily than consumers. The proposed regulation is unfeasible when the amount of willingness to pay differ widely from the amount of willingness to be paid. The benefits may be negative or positive.

With reference to the public interest theory it is a rationale decision to introduce the legislation which mandates for the corporate to disclose the impact of their activities on the society and environment and also disclose the initiatives taken by them to protect the society and the environment from the adverse impact of their activities.

For instance, safety policy, health regulations etc brings a great change in the human health and therefore requires valuation of human life. Kahneman and Tversky documented an endowment effect ,in which individual gives higher value for the things he owns at present than the things he will achieve in future by paying something.

Hertog, General Theories of Regulation,pg. This rate varies over time and across countries. This theory was designed by political scientists J.

The theory suggests that the public interest is the beginning of regulations. The role of the government is to enforce the regulations that have been designed by the industry.

Public interest theory

The theory allows political decision making concerning the industry to be done by the industry instead of an individual. Benson, The economic theory of regulation as an explanation of policies toward bank merges and holding company acquisitions,pg Cowen said cost benefit analysis is applied to regulatory reforms finds net economic value of a new regulation.

Regulation, according to Public interest theory however, is assumed initially to benefit society as a whole rather than particular vested interests.

It suggests that producers can easily regulate their activities faster compared to the consumers. The author believed that the regulations are prepared in the public interest when they are demanded by the public for correcting inefficient practices. The Theory of economic regulation, n. If they do not visit the park they will not take the benefit.

On the other hand, the economic theory suggests that regulations are generated from the forces of supply and demand.

The cost-benefit analysis for a new regulation is done in the following manner: Two problems with public interest theory are: The role of the government is to enforce the regulations that have been designed by the industry.


The theory allows political decision making concerning the industry to be done by the industry instead of an individual. Stigler, The Theory of economic regulation, n. To do so would be consistent with the fact that the primary objective of the electricity market reform in was to put the onus on the Swedish Energy Agency to provide stronger consumer protection against market abuse by the electricity utilities.

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You can change your ad preferences anytime. Private interest theory is the main regulatory theory which emphasises the need for standard setters to intervene because of market inefficiencies and inability to self regulate. Private Interest or (economic Interest theory) is based on an assumption similar to PAT that individuals seek to act in their own self interest%(1).

Accounting theory 5 1. The regulation of financial accounting Prepared By: Dewan Mahboob Hossain Assistant Professor; Dept. of Accounting & Information Systems; University of Dhaka; Dhaka; Bangladesh Financial Accounting Theory Craig Deegan Ch. 3. ´╗┐Financial Accounting Theory Introduction The aim of this paper is to consider three theories of regulation, the public interest theory, the capture theory and the economic interest theory These three theories attempt to explain why a particular phenomena in the regulation process occurs and as such they are positive theories.

Public Interest Theory is a part of welfare economics and emphasizes that regulation should maximize social welfare and that regulation is the result of a cost/benefit analysis done to determine if the cost to improve the operation of the market outweighs the amount of increased social welfare.

Similarity of economic interest theory (private interest theory) with capture theory The two theories suggest that politicians aim at maximizing their utility. The politicians aim at maintaining political power in their efforts to design regulations for the industries.

Private interest theory of accounting regulation
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Economic Interest Theory and Regulation | Accounting