Debate On Interest Theory: Public Choice And Regulatory Approaches

Points of Discussion

Discuss about the Interest Theory Debates and Arguments.

The lawmakers of democratic politics interpret the interest of public. When the politicians make their decisions, primarily in the structure of general rules, they apply as mandatory for the voters. Even if the image of the lawmakers do not activate in their own capability, their activities are dependent on official procedure. It donates organizational capability together with the due procedures and the policy expertise to the regulation of government from the private sector. However, through this concept of regulatory administration, it does not subtract or add any policy decided by the policy makers. The interest of public may be offered but it is offered exactly same as decided by the lawmakers.

The theory of public interest is originated from the traditional concept of representative democracy and the duty of government in capturing theory can be revealed as a crucial response against it. Depending on the temper of individual person, it may appear to be realistic or non-realistic. The theory of public interest is considered as responding to the weekly requirement for regulation (Berry 2015). The economic or positive theory of regulation was came into force in the year 1971. Later, it was extended by taking into consideration the influenced thinking on the theories of regulation. The interest theory is a positive theory that offers a theoretical base for the initial concept of political theory that are responsible to regulate the agencies that are confined by the producers. As a positive theory, it presumes that the regulators that is, the politicians are the maxi misers of utility. Even though the usefulness has not been defined, it would be stated as maintaining and securing the political power. In order to fulfil this objective, they need the money, resources and votes from the groups who can be affected positively by the regulatory decisions. Therefore, the regulators are captured as the special interest groups who want to pocket some money using the income or wealth. These incomes may be in various forms, which involve suppression of competitive products and their substitutes, direct subvention of money, restriction on the entrance of new rivals into the industry, fixing of price and encouragement towards the complementary products (Sanday 2014).

The approach towards the regulation is steady with the theory of public choice, which strains the extent to which the behaviour of government is understood to maximise their individual behaviour. Evaluation is focussed to the preferences of the people who were involved and the way they attain their regulatory goals with regard to fulfilment of their own goals (Frederickson et al. 2015). This in turn, fulfils their private goals rather than achieving the public goals.  Public choices theory resolves the economic and political questions. It depends on the rational choice for the economic assumptions to forecast the behaviour of politicians (regulators). The politicians enact only those policies that assure their re-election, which will assist them to fulfil their aim (Dunleavy 2014).

Various Approaches that are Used by the Regulators

Command and control: Under this segment, the regulators take clear view regarding the acceptable activities and the unacceptable activities. For example, the safety and work regulations that must be complied with the business. Some issues with the regulatory approaches are:

• Due to close connection among the regulated and the regulators created effect can be captured by the regulation. The same was taken place for the case of Australian Accounting Standards Review Board in their initial development stage.
• This approach directs to inflexible, strict and even propagation of regulations
• Most of the times it is not easy to choose the appropriate standard

Self-regulation: This is not as strict as compared to other strategies. Generally, it is implemented with consideration to the associations and professional bodies. Such organisations generate regulations to enforce and monitor against their associates. Generally, the accepted principles and standards of accounting were generated by the professionals to evade government control, which were against the practices of accounting. Various people are not satisfied with the efficiencies of self-regulation, for example, the capability of an association to impose the regulations against their associates (Vohs and Baumeister 2016).

Regulation based on incentives: Generally, people think that taxes are imposed as penalty with a motive to discourage various activities. However, taxes can also be utilized as a measure of positive incentive. For example, for several years Australian firms were awarded with tax incentives for purchasing equipment and plant or spending on development and research. The benefits of such strategy for regulation make the enforcement easier. However, the disadvantages involve the complexity in forecasting the efficiency of incentive scheme (Ginosar 2014).

Disclosure regulation: Advocates for the information mode disclosures for regulation argued that it is not strongly interventionist. Generally, it consigns to the need of the information about the product, for example, food value for a packaged food item, the confusion regarding whether the item is eco-friendly, whether it is produced organically, country of production and many others. Disagreement could arise regarding disclosure of financial data, although that is not the standard implication (Bertomeu and Cheynel 2013).

Interest group theory: This theory is an extension of public interest theory. Therefore, regulation is considered as the relationship between various group and state. Supporters of this theory differ from the supporters of public interest theory as they believe that the regulation for power is more competitive than public interest (Hauner, Prati and Bircan 2013).

Economic theory of regulation: As a positive approach, this theory considers that regulators that are the politicians maximize the utility. Although the term utility is not defined specifically, generally it means maintaining and securing political power. This theory for regulation met with various limitations and due to that reason it was not able to process solution. When a particular theory is not able to response, extensions or ad-hoc hypothesis are attempted to protect the underlying theory (Ekelund and Hébert 2013). 

Various Theories under the Umbrella of Public

Institutional theory: A group of theorists for regulation who declined the model of rational actor have argued that arrangements, institutional structure and the social procedures form the regulation and thus, required to be implicated. There are much more factors involved than only the preference of an individual, which enforce the regulation that is, social and organizational setting through which the regulation materialized (MacCormick and Weinberger 2013).

Political theory: Most of the theories discussed above form a implicit approach based on the capitalist system. Capitalism is a system involved in society in which economic and political realms are interplayed. There are various inequalities exist among the society that arise from the usage of property, level of access to and market place reliability. Regulation is crucial to implement balance the inequalities and assure the existence of capitalism (Carnoy 2014).

This was the worst oil spill case in history. An explosion on the Deepwater Horizon offshore oil platform grounded it on April 20, 2010. It was about 50 miles southeast of the Mississippi River delta. Due to the mishap, fishing and tourism industry were forced to stop. Life of the residents was affected seriously and it caused significant damages to the environment (Kleinnijenhuis et al. 2015).

BP and other organisations overlooked their responsibilities and stated that the case was just an accident – This statement violates the theory of Utilitarianism as they were answerable for the outcomes of their action. These could be solved through the following

Solving the issues immediately related to the environment by minimizing the adverse effect for local residents and environment

Treating well the affected people by reducing suffering, sadness and economic losses of the people and giving opportunities for the betterment of their future

Improving the environment for the company itself and the local tourists for the long- term through assuring sustainable development

Forcing them for payment of a considerable amount to solve the issue immediately – This approach can build a good impression for the company as people will think that the company maintains their corporate social responsibility in well manner, which in turn will protect the company. However, this action can be costly and lead the company in difficult situation.

From the above, it can be said that as per the humanity formula, that an organisation for business and their activities should be arranged in such a manner that it should contribute to the well being and development of people. Therefore, the charged against the company were justified.  

Conclusion:

From the above discussions, it can be concluded that, irrespective of the strategies that are adopted, there is no doubt about the factor that regulation is the outcome of political force’s interplay. How these are implemented will differ based on the various situations. Over the past years, these forces have affected and will continue to directly manipulate the accounting practices through different regulation form that have been forced on the accountants and accounting.

References:

Berry, J.M., 2015. Lobbying for the people: The political behavior of public interest groups. Princeton University Press.

Bertomeu, J. and Cheynel, E., 2013. Toward a positive theory of disclosure regulation: In search of institutional foundations. The Accounting Review, 88(3), pp.789-824.

Carnoy, Martin. The state and political theory. Princeton University Press, 2014.

Dunleavy, P., 2014. Democracy, bureaucracy and public choice: economic approaches in political science. Routledge.

Ekelund Jr, R.B. and Hébert, R.F., 2013. A history of economic theory and method. Waveland Press.

Frederickson, H.G., Smith, K.B., Larimer, C.W. and Licari, M., 2015. The public administration theory primer. Westview Press.

Ginosar, A., 2014. Public-Interest Institutionalism: A Positive Perspective on Regulation. Administration & Society, 46(3), pp.301-317.

Hauner, D., Prati, A. and Bircan, C., 2013. The interest group theory of financial development: Evidence from regulation. Journal of Banking & Finance, 37(3), pp.895-906.

Kleinnijenhuis, J., Schultz, F., Utz, S. and Oegema, D., 2015. The mediating role of the news in the BP oil spill crisis 2010: How US news is influenced by public relations and in turn influences public awareness, foreign news, and the share price. Communication Research, 42(3), pp.408-428.

MacCormick, N. and Weinberger, O., 2013. An institutional theory of law: new approaches to legal positivism (Vol. 3). Springer Science & Business Media.

Sanday, P.R. ed., 2014. Anthropology and the public interest: Fieldwork and theory. Academic Press.

Vohs, K.D. and Baumeister, R.F., 2016. Handbook of self-regulation: Research, theory, and applications. Guilford Publications.