Public Interest in Theories of Regulation Essay

Public Interest in Theories of Regulation - Essay Example Theories of regulation help us to find solutions so that investors do not get exploited. Public Interest in theories of regulation pertains to allocation of resources in a regulated manner to safeguard the best interests of public. These distributions may be haphazard or aimed towards satisfying fewer people’s interests, if not regulated. This failure of markets may occur due to several reasons such as: Absence of competition Monopolies try and create barriers of entry to other interested firms Asymmetry of information Products of public goods are produced The scarce resources get deployed towards their purposes with little resources remaining for other requirements. So, to avoid such discrepancies public interest of regulation has to be undertaken by the Government. (Hertog J.D., 1999) The Government will also intervene due to its own personal interests of: Gaining votes To act before any demand from public interested groups arises Acting as neutral arbiters before the issue becomes a problem However, there are cases where Governments also have failed as regulators as they are captured by self-interest of individuals who formed groups. The accounting professionals who have not confirmed themselves to self-regulation and legitimacy have thought of a way out of their irresponsibility. They started capturing the regulator and dictating it through manipulation of accounts. This is possible because accountants argue whether to release relevant or reliable information to the investor. In the guise of these terms, they undertake accounting standards which serve their interest and avoid regulation. Situation: The Act of Sarbanes-Oxley of 2002 is a classic example in this scenario. Public interest has made it mandatory that financial reporting has to adhere to the principles of corporate responsibility. Out of some eleven sections, 6 are construed to be very important as far as compliance matters. The gist of these sections is that financial reporting authoritie s have to prove their credibility very early by establishing detailed policy of financial security. They cannot relax till the end and try to capture public interests. They are required to report according to the IFRS mandates to the investors. (Anon. 2006). As per this mandate, Accounting Standards should also take into account social and economic consequences so that relevant and reliable information is pronounced to the investors. Private Interest Theory: This theory is based on the assumption that Government is not a neutral arbiter as supposed in public interest theory. It is in fact self-interested rationally due to various reasons such as: To avoid dispute with people of financial power during re-election To transfer their power readily if people who can help them in re-election so require. If they are in power, they would like to increase their wealth by doing so. If not in power, they want to attain power and so listen to these private individuals. There are many examples o f private interest. The Oil Spill in Deep Waters in 2010 would help us in understanding the process of domination of private