The Ethics of Regulation

Abstract

Regulations are often imposed in order to correct any failures in the market, whether the failure is a result of the functioning of a market or the behaviour of a government. However, every regulatory intervention br ings up a question: How ethical is the regulation? Even if a regulatory intervention could achieve more effici ency or more equity, it may not mean that it is ethi cal. The concept of ethics is ne cessarily subjective, it is based on the morals and standards of a society. Yet even though a society may be concerned about ethics, the issues of equity and altrui sm matter as does the way in which firms produce and seek to rationally an d efficiently maximize profit. Defining ethics is a difficul t issue, and defining ethical regu lation is even more difficult. Any form of regulation is a tool for interv ention used to balanc e the trade-off between efficiency and equity to create harmony between a market or economy and the society it functions within. In an ideal world, any go vernment intervention implemented would be for the greater benefit of all. However, this does not always happen in the vicissitudes of the real world when governments regulate an d intervene in markets, which are, in turn, based on the principle of rational self-interest and efficiency. In this paper we discuss the role of society in market regu lation. The discussion will focus on the importance of society on ethics and therefore on what constitutes ethical regulations. In fact we argue that equity, effi ciency or even failures are not the main factors to consider when regulating. It is society that defines ethics and how society understands ethics influences the regulatory environment