Deregulation, Regulatory Reform, and Regulatory Impacts

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Deregulation, Regulatory Reform, and Regulatory
Impacts
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Deregulation

• Fanfare w/Reagan Administration
• Get government off our backs.
• Actually started in Ford and continued during
  Carter Admin.
• Three major areas
• communications, financial institutions,
  transportation
• Note these are economic reg. areas.

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Airline Industry

• Airlines initially regulated by the Civil
  Aeronautics Board (CAB).
• Controlled almost every aspect of domestic air
  transportation
• CAB was established to protect the airline
  industry.
• In 1958, the Federal Aviation Act

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Airline Industry

• Push to Deregulate -- politicians/ interest
  groups supported deregulation.
• WHY?
• Conservatives against regulation per se.
• Liberals wanted to open up air travel to those
  beyond the wealthy.
• Unions and airlines against

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Airline Dereg. -- Arguments

• Why Deregulate?
• Opening up the market make it more efficient
  airlines compete w/lower prices, better service.
  
• Why Keep Regulation?
• System worked, provided safe, stable industry.
  Prices not that high. Competition could lead to
  business failures resulting in a monopoly of
  carriers. Concern w/small cities not serviced.
  Unions concerned about loosing power and benefits.

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Airline Dereg. -- Initial Outcomes

• Airline managers to make decisions about pricing
  and service to keep their market share.
• Decreased profits, but during recession
• Delay
• Rise in number and failures of airlines

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Airline Dereg. -- Later Outcomes

• Now that the industry has gone through transition
  what happened?
• Fares
• Failing of airlines have led to new concerns
  about an oligopoly.
• Service -- a little more unknown
• Small Towns -- mixed
• Safety
• Wages

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Regulatory Reform

• Regulatory reform suggests that regulation has
  failed to meet its goals.
• What are regulatory goals?
• Efficiency -- the optimal allocation of resources
  to maximize utility.
• Equity -- deals with the distribution of benefits
  in society
• These goals may be contradictory, are normative,
  are not always clear.

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Political Shortcomings

• Lack of responsiveness
• Political institutions -- responsiveness to
  elected official is crucial and has policy
  implications.
• Ineffective -- from whose perspective?
• Poor decisions
• Lack of coordination
• Delay

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Alternatives

• Market-Oriented Reforms
• Vigorous anti-trust action to spur competition
• Taxes and subsidies
• Marketable permits

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Alternatives (cont)

• Other Strategies
• Self-Regulation -- rely on this to some extent
  anyway.
• Liability law -- burden of proof on injured
  party slow process reactive.
• Insurance
• Information strategies -- disclosure, educ.

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Reform Options

• Deregulation (successes have been limited to
  economic regulation)
• Cost-Benefit Analysis
• Sunset laws
• Regulatory Budgets -- amount agency imposes on
  society regardless of benefits

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Why study impacts?

• Implications for constitutional democracy
• Are regulations providing adequately what the
  people want?
• Equity issues
• Can cause a lot of problems and effects on
  people sometime inadvertently.
• Presumed distribution of benefits and costs
• Do people who are affected perceive the impact
  and then react to it?

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Different Ways to Approach Impacts

• Effectiveness Model of Impact Analysis (program
  evaluation).
• Are you better off now? Difficult to measure the
  goals of social regulations.
• Economic Effects
• Effects on Small Business