COMM 318 Chapter Notes - Chapter 13: Adverse Selection, Regulation Fair Disclosure, Vestment

• School: Queen's University
• Department: Commerce
• Course: COMM 318
• Professor: Ahmed E Hassan

Document Summary

Public interest theory: regulation is a response to public demand for correction of market failures for more information. The idea is to maximize social welfare, to attain the first-best amount of information production. However, regulation is a trade-off between its costs, and its social benefits (improved market operation) Industry operates in the presence of a number of interest groups (constituencies) Constituencies lobby regulators for greater (or less) regulation in their areas of interest. Creation of standard-setting bodies stand in for the varying interests of investors. Activities subject to market failure regulation from information disclosures, since market failures are caused by management"s own conflicting interests. Due process management is involved in standards development, through reaction to exposure drafts, and stands board representation. Public interest theory doesn"t include any of these predictions implementing a new standard requires only that the regulator evaluate its social costs and benefits.