An Analysis On The Regulatory Equilibrium

Regulatory institution is a set of code of conduct by which government apparatus regulating industry and standardization the relationship between government, firms and consumer. It is selected by the bodies (i.e. government, firms and consumer) involved in the government regulation activities, and in turn it stipulates what they do, determined the characteristics of their behavior. Regulatory equilibrium is that the regulators, the regulated, and consumers who affected by the regulatory policy are satisfied with the regulatory arrangement, so they will not change it or have no power to do it. From the viewpoint of supply and demand of regulation, regulatory equilibrium is the regulators supply respond the need of regulatory demand, as all the factors affected the regulatory supply and demand are fixed. There are three factors affected regulatory supply and demand: the one is the cost, such as the cost benefit restriction of design and implement of regulatory institution. When the efficiency of regulation can be proven, the regulatory arrangement is reasonable. The other is industry interest group. When interest group of regulated industry recognized that they can obtain monopoly profit under the present regulatory arrangement, they will fight against changing it; but when they understand that they can not get the profit through the present regulatory institutions, they will have a incentives to change it. Another factor is rules in force. Regulation is carried out under existing political, legal framework, and also is restricted by the informal rules such as usage, custom, convention, and ideology. When rules are conflict, it is necessarily to adjust the regulatory arrangement. Thus, regulatory equilibrium is a temporarily stable condition of regulatory arrangement with the cost benefit restriction, industry interest group games and rules confliction. When above factors and the environment (such as natural monopoly itself) on which regulation depend change, regulatory equilibrium is changed to disequilibria, in this time, regulatory institution arrangement has to be adjusted to a newer regulatory equilibrium. The exposition about institutional equilibrium in the new economics of institutions gives us a framework to discussion regulatory equilibrium. T. W. Schultz defined the institution as a set of rules to control human activities. Institutions, as a code of conduct under which people act and transaction, is a game rule too. In game equilibrium of institutions, social institution is defined as a pattern of activities of all the social members. It determined the conduct under certain condition. It is self controlled, or supervised by external authority. Thus, institution is defined as a code of conduct, but this code is inherent in economic procedure, and as a outcome of game, it is not designed externally through politics or legislation. Demanding for institution sources from scarcity, supplying for institution is dependence on the capability and wiliness of political procedure to offer institutional arrangement. But these capability and wiliness are depended on the strategy structure or power of interest groups in a society. A demand supply analysis framework of institutional change describes the role of cost benefit comparison of a economic man and interest groups in institutional change and institutional equilibrium. Interest group is also a basic course of shaping path dependence in institutional change.The viewpoint of regulatory equilibrium in the economics of regulation is variable.In public theory of regulation, demanding for regulation is a social public desire. The supply of regulation is government responding to the public demand, to the demand of social fairness and efficiency without cost, effectively and kindly. When market failure appears, the government can stand for the public interest to plan rationally and put forward and implement regulatory policy. By doing so, regulation get equilibrium. But in the course of regulatory equilibrium, the cost and benefit of regulation is neglected.