BUS 421 Chapter Notes - Chapter 13: Regulation Fair Disclosure, Coase Theorem, Market Liquidity

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 421
• Professor: Irene Gordon

Document Summary

Review two theories of regulations: public interest theory regulation should maximize social welfare. Individuals form coalitions, or constituencies, to protect and promote their interest by lobbying the government. Consider the challenges to financial reporting and standard setting resulting from global integration of capital markets and international convergence of accounting standards. Suggests that regulation is a response to public demand for correction of market failures. Assumes to have the best interests of society at heart. Does its best to maximize social welfare, which is to attain a first-best amount of information production. Regulation is a tradeoff between its cost and social benefits in the form of improved operation of markets. Takes the view that an industry operates in the presence of a number of interest groups i. e. manufacturing industry comprise an interest group of customers, organized labor, and environmentalists. If bargaining costs are too high for parties to contract, an appeal to government to step in is possible (coase theorem)