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Administrative Law Introduction Recap

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WHAT IS ADMINISTRATIVE LAW?
Broadly, AL might be defined as the legal control of govern’t
More narrowly, AL consists of those legal principles at define the authority and structure of administrative agencies, specify the procedures agencies must follow, determine the validity of administrative decisions and define the role of reviewing courts and other organs of govern’t in relation to a.a.
Each particular field of regulation has its corresponding substantive and procedural law. AL as such deals with the general principles and rules that cut across the particular substantive fields and apply t a.a. generally. These principles include 3 basic bodies of law: (1) constitutional law; (2) statutory law, including above all the APA; (3) a form of federal com mon law, embodied in judicial decisions that do not have a clear constitutional or statutory source.

REGULATION
Aa are engaged in regulation. Regulatory agencies develop and enforce prohibitions or obligations with which private firms and/or individuals must comply (some agencies aren’t regulatory, but benefactor: they’re engaged in disbursing govern’t benefits).

PROBLEMS THOUGHT TO CALL FOR (ADMINISTRATIVE) REGULATION
One can imagine a govern’t without agencies, but no govern’t can avoid “regulation”. The common law is in fact a regulatory system, although outside the definition set out above: it depends on the creation and enforcement , by law, of a set of rights, notably those creating private property and enforceable contracts.
The appropriate scope of govern’t regulation is of course strongly contested.

MARKET FAILURES, ECONOMICALLY DEFINED
One method of analyzing admin regulation is to view it as a response to “market failures”, treating the marketplace as the norm and assuming that those who advocate admin regulation must justify it by showing that it is needed to achieve an important public objective that the marketplace cannot provide.
Many market defects fall within one of the following 4 categories; the first 3 are interrelated, the last is distinct.

1. The need to correct for “externalities” or “transaction costs”

Regulation is often justified by the need to compensate for the fact that the price of a product does not reflect costs that its production and use impose on society. Neither the manufacturer nor the consumer of its products bears the “externalities” (or “spillover costs”), such as harms/air pollution: as a result, the demand for and production will be greater than they “should be”, because if buyers had to pay for the cost of its adverse side effects price would be higher and less would be produced and purchased. That in turn means that e.g. there is more pollution than there “should be” and that resources are allocated inefficiently. This is the conventional way of seeing the problem. Coase suggested that the harmful effects of pollution should not be seen as externalities: such coast result from the combination of the production process and the fac that people have chose to live near the plant; the problem results from a large number of acts and omissions on both sides. Morever, an efficient result would come about if the various parties were able to costlessly bargain with one another to the solution they jointly prefer. However, “transactions costs” prevent bargains from occurring. Thus, the problem of externalities might be seen as one of transaction costs.

2. Collective action problems

Individuals, acting in their rational self-interes, sometimes produce collective or public harm, a problem that can be avoided only if they can ensure mutual cooperation; govern’t regulation is a form of group cooperation > e.g. public or collective good, which are characterized by nonrivalrous consumption (consumption by one person does not create scarcity or preclude consumption by others) and nonexcludability (the good benefits a group of peopleand no one person or subgroup caneasily, or at all, be prevented from enjoying it). Markets are poor at producing public goods because of (A) transaction costs and (B) the “free-rider problem” (= people are reluctant to act to provide a public good because almost all the benefits will flow to others, who get a free ride, and because they hope they themselves will be able to free ride on someone else’s efforts). Regulation can be a form of mutual cooperation to provide a public good that the market will not. In a standard formulation, a group of people may face a “prisoner’s dilemma”. 3. The need to compensate for inadequate info

For competitive markets to work well, consumers need info with which to evaluate competing products. If consumers lack important info, markets will fail. Info is itself a commodity, whose supply reflects cost and demand. Optimal level of info is NOT full info.but hte market for info may be imperfect. People also face cognitive (people often use heuristic devices –e.g. availability - that lead to erroneous judgments) and motivational (people are often “risk optimists” and may reduce “cognitive dissonance” by believing a risk is lower than it is in fact) problems in processing info. Govern’t regulation is sometimes designed to compensate for inadequate info or to lower the costs to consumers or workers of obtaining adequate info. In particular , govern’t action may be justified when (1) suppliers mislead consumers whose available legal remedies are expensive and impractical; (2) consumers cannot readily evaluate the info available; or (3) the market on the supply side fails to furnish the info needed or demanded. Info defects might justify a range of responses: the choice will depend, at least in part, on how effective an expensive it is to provide adequate info.

4. The need to control monopoly power

The key traditional rationale for regulation of prices and profits rests on the need to control the exercise of economic power by a “natural monopolist” (natural monopoly = average costs of production continually decline with increased output and economies of scale are so important that it’s cheapest to satisfy the demand for a good or service by placing all production with a single firm). Problem is that that firm can then increase its profits by restricting output and charging higher than competitive prices. Accordingly the govern’t steps in to regulate how much the monopolist charges. Under these conditions, regulations aims in part at “allocative efficiency”.
The economic debate about whether regulated prices will avoid allocative waste is complex.

LESS SECURE ECONOMIC GROUNDS

Other less widely accepted economic arguments sometimes underlie govern’t regulation

1. The need to control “windfall” profits

“Rents” in the form of “windfall profits” may result from sudden, generally unanticipated increases in commodity prices. The profits will flow to any firm that holds a stock of that commodity or controls a nonduplicable low-cost source of supply. Ordinarily, such profits are not regulated; but when they are in large amount and the result of serendipitous events there may be a demand for regulation, whose object is to transfer allegedly undeserved profits from producers (or owners) of the scarce resource to consumers (or taxpayers).

2. The need to eliminate “excessive” competition

If prices are too low most of the competing firms will go out of business: only 1 or 2 will survive and they will have a free rein in setting prices. One version of this argument has historic roots. A second rationale for regulating excessive competition arises in the case of industries with large fixed costs and cyclical demand: the firms in the industry, pricing at incremental cost during an economic downswing, may find they have insufficient revenue to continue production; yet in some cases to close their plants is inefficient, since it is more expensive to reopen plants during the next upswing than t keep them open continuously. This rationale may be used to justify “depression cartel” that sets price floors and allots market share.
A third rationale relates to the possibility of “predatory” pricing: a dominant firm sets prices below variable costs, with the objective of driving its rivals out of business.

3. The need to alleviate scarcity

Sudden or dramatic price increases sudden problems have led to the claim that allocation through market prices will cause too sudden or too serious a hardship on many users. It’s important to bear in mind that a shortage may be the result of an ongoing regulatory program or reflect a deliberate decision to abandon the market and use regulatory allocation to achieve “public interest” objectives.

4. Agency problems

Market forces may be distorted, generally causing greater consumption than if the buyer had to make the purchase and pay for it entirely alone.

NONECONOMIC JUSTIFICATIONS
Not all regulation rests on the economic model, some regulation pursues ends other than efficiency.

1. Redistribution

Some regulation is justified as a means of redistributing resources from one group to another. Redistributive measures can also involve regulation rather than direct transfers.
Unequal bargaining power, reflecting unequal starting points, is sometimes invoked as a rationale for redistributive regulation. But redistributive rationales for regulation should be taken with a grain of salt: it’s not clearthat efforts to redistribute resources through regulation work well or, indeed, work at all. Note that regulation does not directly transfer resources from those who are rich to those who are poor.
Of course, many statutes with redistributive goals should be seen as the product of political power wielded by self-interested private groups.

2. Nonmarket or collective values

Some regulatory program can be understood as an effort to promote nonmarket values or democratic aspirations or considered judgments on the part of some segments of society.
Thus some people argue that purely economic accounts of regulation involve a “category mistake”: they use economic thinking, best suited for the market domain, as the model for the political domain; but the choices people make as citizens may differ from the choices they make as market partecipants.

3. Disadvantage and caste

Some regulatory programs have emerged as a result of efforts to overcome systematic forms of social disadvantage or caste-like features. Here too govern’t tries to shape preferences rather than take them as given: its goal is to make people less likely to treat people differently on the basis of some characteristic.

4. Planning

Govern’t regulation is occasionally justified on the ground that without i the firms in an industry would not produce their products in an economically efficient manner. Sometimes the interest in planning is accompanied by a claim that economic markets are insufficiently democratic.

5. Paternalism

Regulation may reflect “paternalism” , being at least partly justified on the ground that govern’t should protect individuals from their own confusion and irresponsibility.
SUPPLEMENT: in recent years intereset in and controversy over paternalistc regulation have become more and more pronounced. On the one hand, vituperative objections to the “nany state” abound; on the other hand, regulators at all levels of govern’t have increasingly relied on the insights of behavioural economics to encourage, and sometimes require, people to act in ways that not only don’t hurt others but also don’t hurt themselves.
The fundamental point for regulatory policy is that in many important contexts people err. Free markets can and do provide some protection against such errors; but market response may be incomplete. The question for regulatory policy is whether “behavioural market failures” justify govern’t interventions – that are paternalistic (> see Sunstein).

Many regulatory programs are said to have multiple justifications. Because diverse ideas may underlie a single regulatory statute, such statutes are frequently “incompletely theorized” in the sense that asocial judgement on behalf of the stature does not rest on a single, coherent justification.

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