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Energy Policy

The Game of influence in Regulatory Capture

- Influential to sales and cost of sales by regulatory capture concept.

- The impact on economic phenomenon.

  • In the market system, regulations are designed to prevent market failures that prevent fair exchange

  • Anti-trust regulations in the U.S

  • Mutually self interest between regulators and corporations.
  • Application of game theory in the market system

  • Regulatory theory on market control

Regulated parties:

Government, consumers, and

other industries like retail or wholesaler

Regulator:

Energy Efficiency Standards (EES)

The risk of regulatory capture in China's banking sector

> Strong control all banks especially Chinese banks

> Benefits provision and protection for domestic banks

> Source of bias occurred

> Foreign banks are more complex and less recognition

> Chinese banks has more substantial and systematic on government fiscal policy

> Government facilitates lending to its own banks for economic and social development

> Foreign banks with own autonomy but slow entry and expansion

> Their presence in China are limited and controlled

The risks of Regulatory Capture

Regulatory Capture by Regulated Entities

Regulatory Capture by governments

  • The rotation of senior personnel among Chinese Banks, Government and CBRS

  • Chinese banking regulation is a manifestation of the private interest theory of banking system.

  • Regulators possess less specific information in practice the risk managers from regulated parties.
  • 80% Non-Performance Loan were associated with local government projects.

  • Regulator party: the Chinese Banking Regulatory Commission (CBRS)

  • Government maintains its political influence and control over the CBRS

  • The recruitment of personnel for the CBRS through the National Public Servant Recruitment system

  • The Government provides funding to maintain operation of the CBRS

> To enforce and direct to achieve the goal

> To negotiate and persuade parties

> Receiving gifts, benefits, or bribes

> Social system may influence such as cultures, traditions, and politics

> Large diverse community

The risk of regulatory capture in the energy policy

Regulatory Capture In China's Banking Sector

The risk of regulatory capture in the game of influence

> Regulators attempt to control both quantity usage and over prices of energy or electricity

> Fuel cost increases leading to electricity price rises

> Control the quantity usage then need to give up cost control

> Illegal, bribes or threats

> Indirect favor for their friends, relatives or political campaigns

> Desire for personal benefits or own fear of harms

> Imperfect competition in the market

> Fluctuations of cost price

e.g. global financial crisis in 2007

Content

  • What is Regulatory Capture Theory?

  • The implication and impact of Regulatory Capture in various industries.

  • The risks of Regulatory Capture.

References

Albino, D, K, Hu, A & Bar-Yam, Y 2013, ‘Corporations and regulators, the game of influence in regulatory capture’, Ideas Working Paper Series from Repec, pp.1-27.

Croucher, M 2011, ‘Are energy efficiency standards within the electricity sector a form of regulatory capture’, Energy Policy, vol. 39, pp. 3602-3604.

Ping, H.W 2013, 'Regulatory Capture in China's Banking Sector', Journal of Banking Regulation, vol. 14, no. 1, pp. 80-90.

What is Regulatory Capture Theory?

Deegan, C 2014, Financial accounting theory, Jillian Gibbs & Rosemary Noble, New South Wales.

  • Regulatory capture when a regulated party is taking charge of the regulator. In the result, a regulation is introduced for the benefit of the parties subject to regulation

  • The survival of the regulatory body over the period of time depends on satisfying the expectations of the regulated parties

Regulatory Capture Theory

ACC 80005 - Financial Accounting Theory

Presented by

Bich Ngoc Nguyen (Maggie) 6624316 - YingYing(Serena) Chen 100643081 - Maneerat Buakham (May) 100660569 - Kuntheara Chhea (Austin) 100058724

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