3.6.2

Question 1

Define regulatory capture

Answer 1

A form of government failure, when a government agency operates in favour is producers rather than consumers

Question 2

what are the consequences of regulatory capture?

Answer 2

• consumers qaulity may decrease if standard of service is not delivered
• prices may be higher which may have regressive effects on lower income households
• damaging externlaities and social welfare loss

Question 3

what are causes of regulatory capture?

Answer 3

• asymmetric information as regulators have to rely on firm for critical information
• under resoucrced- firms may not have sufficent funding to srutinize an indsutry properly
• information gaps: regulators may not fully understnad the complexities of an industry

Question 4

what are some examples of regulatory capture?

Answer 4

• Financial services authority was blamed for not monitoring the lending activities which caused 2008 financial crisis
• OFWAT (water industry regulator) accused of allowing water bills charged by monopolys to be higher than they should