Académique Documents
Professionnel Documents
Culture Documents
Environment
B.N. Ghosh
Chapter 12
Role of Government
Learning Objectives
The role of government in the development of
business environment
Government measures to tackle market-failure
problem
Government regulations and controls
The theory of regulation and regulatory failures
Role of government in
development of business
environment
An underdeveloped
or developing country cannot
Role of government in
development of business
environment
Role of government in
development of business
environment
The state must provide
the following facilities to attain
economic and industrial development.
Become Self-sufficient
Reduce Cost of Production
Provide for Shortage of Capital and Manage the
Workforce
Invest in Human Capital and Promote
Education
Support Agriculture
Check Disparity in Wealth and Income
Adopt Suitable Monetary and Fiscal Measures
Proper Allocation and Stabilization
EfficiencyEquity Trade-of
Merit Goods
Oxford University Press 2014. All rights
Role of government in
development of business
environment
Government measures to
tackle market-failure problem
Market failure occurs when the economy cannot
function on the basis of the rules of market as dictated
by price mechanism or demandsupply construct. In
the case of market failure, the following measures can
be adopted by the government.
Imposition of a Corrective Pigovian Tax
Government Regulation
Market for Pollution Rights
Internalization of Externalities
Creating Property Rights
Profit
Profit may have to be regulated through a number of
ways such as regulation of markup and fixed rate of
return on investment based on the average rate
obtained in the industrial sector in comparison with the
international standard.
Asymmetric Information
Rational ignorance is a situation where the cost of
information is much higher than the apparent benefit
from the deal, so people try to remain ignorant .
Regulatory failures
The first source of regulatory failure is the conflicting
goals of regulations. Some of these conflicting
objective are:
Conflicting Goals of Regulations
Problems of Regulations
Over-regulation
Problems of regulation
The capture theory of
regulation
Although ministers (legislators) are the agents of
the people (principal) and should always try to further
peoples interests, they in reality cannot and do not
always do that.
Personal interest may clash with national interest,
and in many cases, the former gets precedence over
the latter .