Tobacco Regulation

http://online.wsj.com/article/BT-CO-20090612-710944.html

Brian Davies Alejandro Siquieros

In this article they talk about the new regulations that are being put onto tobacco products. It is going to allow the FDA to be able to regulate the tobacco products that are being manufactured to this day. Both the President and the House both approved this law. The President is glad to see that the parties can finally come to an agreement on how to regulate tobacco. Also, he is glad that there is finally some noticable change in Washington because they have not been able to come to an agreement before this. This is a good idea because if there is nobody that is going to regulate the tobacco industries then they are just going to be able to do what ever they want and be able to advertise where ever they want. They need to be regulated by a government branch so that they will be carefully watched over. The only drawback I see to this is that if the government gets to regulate this industry then that means that there are going to be more taxes put on tobacco products. This is just another way for the government to try and control peoples lives and get them to quit smoking. I believe that it is neccesary for the government to regulate this industry but not to single out smokers and keep on raising the prices and implimenting more taxes on them.

Stricter Labeling Urged for Bottled Water

Bottled water companies might be looking at new standards for the information that needs to appear on their labels.  As many people know, the water we get from our tap and the water coming  from bottling companies is processed differently.  People assume that because it is “purified”/ “spring” water that comes in a bottle, that it must be better than the water from the sink.  However tap water is regulated by the Environmental Protection Agency (EPA) and strictly enforces the rules and standards for their water.  Bottled water on the other hand is regulated by the Food and Drug Administration (FDA) and although their policies on water regulation are similar to the EPA’s, the FDA’s does not have the power to enforce them.

Information on municipal water is readily available and that is water we get for almost free.  For as long as bottled water has been around one would think that it would be more closely monitored and regulated than it is.  For a “$16 billion” industry, it would be a devastating blow if information was released stating the water they were bottling was not as clear or pure at the municipal tap we receive.  The FDA is now going to required that a label be put on every bottle stating where consumers can find information about how the water is processed and regulated.  If we are paying such premiums for this water I think it is necessary that the processing of it is more rigorous that EPA’s regulation of municipal tap water. I mean that is what we are paying for isn’t it?  In such an economic recession maybe the better option is to back off of this bottled water, especially if it might not be that beneficial for you anyway.  The labeling regulations that will be the new standard for bottled water might be just enough incentive for the companies to actually make sure their water is processed properly.  If consumers see information that is dissatisfactory it could leave the industry with a big problem on its hands and a great loss in revenue. 

Stephen Killion and Jason Kletzky

http://www.time.com/time/health/article/0,8599,1909297,00.html

Monopoly Ends? Another Monopoly Start?

German pharmacy firm plans to open more than one hundred pharmacies in Sweden, since Swedish government decided to end forty years of state monopoly and deregulate the pharmacy industry. Some people may think that it would be good for Swedish pharmacy market and social welfare, and the market may competitive and social welfare will be increase.

But, it may be start of another monopoly. Since the market was monopolized by state, new firm trying to enter the market may have less strategies and less economic scale. If German pharmacy firm finished setting up their pharmacy market, they will do something like advertise more, decrease the price and offer better service to make new firms difficult to enter the market. Also, social cost may be more increase than the social cost when market was monopolized by state. When state controlled market they would probably tried to minimize the social cost because they are also part of government and know what part of government should do over social welfare.

But German pharmacy firm is different than state. They will try to maximize the profits and they may success to have monopoly power over Swedish pharmacy market which will increase deadweight loss. Swedish government should think about that before German firm encroach Swedish pharmacy market.

GooYong Chung
http://www.forbes.com/feeds/ap/2009/07/01/ap6608646.html

Pedicab regulation

It has passed three weeks since a pedicab collide with an automobile while riding on the streets of New York, this ended with serious injuries of the driver and the passenger. There is a bill that is going to be passed in the next days that willl regulate the number of pedicab and their right to ride over bicycle lines. The taxi driver community is a big interested group in passing through this regulation, and even implementing greater sanctions for pedicabs who may be irresponsible when driving.
In a big city such a New York there certainly must be regulations that will enforce the security of the drivers and the passengers. They should be allow to use the biking lines in order to prevent further collisions, it is common sense that this type of transportation can not use the same roads as automobiles. The terms of the regulation are still not clear; for example they don’t mention if a prior pedicab course should be taken before going into the actual business. It also lacks regulation regarding traffic problems such as the distance that a car must have from a pedicab; or streets that may be to congested and dangerous for pedicab drivers. The benefits of a good regulation can be as great as saving lives, therefore it should cover not only the number of pedicabs driving through New York but also other possible problems.

http://cityroom.blogs.nytimes.com/2009/06/29/pedicabs-roll-toward-regulation/?scp=1&sq=regulations&st=cse

Written by:
Paola and Matthew

Should Hedge Funds Face Harsher Regulation?

Joseph Chadwick

Jonathan Jackson

James Petkovski

Throughout this entire economic downturn managers of hedge funds have received heavy criticism regarding the welfare of their clients over their own. The E.U. is already requiring that hedge funds meet higher standards of regulation that are much tougher than previous rules. AIMA, a London investing group, calls the new rules bureaucratic and argues that these policies will only cost society more. Kinetic Partners, an investing consulting group, claims that more than five billion dollars would be lost. This is also harmful to managers around the world because foreign managers would not be able to advertise their funds to E.U. investors if they do not meet these strict regulations. More criticism is argued by politicians as well claiming that hedge and private funds were not the reason for the financial collapse. Regulating private and hedge funds in this market would only be harmful to the global recovery. Blaming the hedge funds is inefficient and is only happening due to political pressures says Mats Odell Sweden’s Financial Markets Minister.

Along with domestic investment managers, the E.U. is afraid of foreign hedge funds as well. There is almost no equivalence between hedge fund regulations in Europe and the United States. Andrew Baker, the CEO of AIMA says that this could lead to a lock out of all American investment managers, or at least those that do not adhere to the new more stringent standards. The fact that British citizens would be limited to only domestic investments would be very harmful to total social welfare and therefore has sparked immense scrutiny from the European parliament and the European Council. Sweden’s Odell believes that the bill can be passed if it is highly amended and polished to be more realistic. Myner’s, Britain’s minister has vowed to get the bill amended and passed while lobbying groups have begun campaigning against any form of the bill passing. The plausibility of the bill passing has diminished but there is still hope; no force from the bill would actually take place until at least 2011.

http://www.time.com/time/business/article/0,8599,1909026,00.html

DOJ Probes Telecom Giants

     July 6—The Antitrust division of the US Justice Department has
started an informal probe of large US telecommunications
companies such as AT&T Inc. and Verizon Communications to
determine whether they are abusing their market power in the
form of exclusive agreements with handset manufacturers (such
as AT&T’s contract with Apple Inc to offer the iPhone).

Lawmakers are mainly concerned with whether such
agreements are deterring competition from smaller wireless
service providers and taking advantage of consumer
preferences for popular phones. The (ongoing and unresolved)
economic debate of the ideal extent to which an oligopolistic
industry should lean towards perfect competition or monopoly
to produce efficient outcomes and promote technical progress
is at the heart of this issue, as the telecom industry is certainly
an oligopoly in which technology and product development
occur at a relatively fast pace.

On the one hand, the general gut reaction seems to be that
more competitive industries are not only more efficient, but
create greater incentives for innovation. Elementary
economic theory maintains that as a market’s structure
strays further from perfect competition, resources are
increasingly misallocated and outcomes are increasingly
inefficient. Lending further support, intuition says that the less
influence firms have over their market, the more inclined they
are to compete for market share through price, quantity, and
product differentiation channels. Thus, protecting a firm’s
monopolization over certain markets within their industry
reduces the role of exhibiting competitive behavior to their
survival.

On the other hand, however, giving companies the opportunity
for monopolizing certain product markets may in fact promote
competition, stimulate technical development, and protect and
grow smaller firms with exclusivity rights phones that prove
immensely popular. Telecom firms, in competing through their
prices for service and products and through differentiation of their
service and products, have multiple channels through which they
might extract market power. One firm’s monopolization over a
popular product may, by capitalizing a larger share of the overall
market, incentivize other firms to cut prices or to invest in
developing and improving their own services and market offerings
in attempt to augment their own respective market shares.
Further, the opportunity for product monopolization that
exclusivity agreements provide for, creates a barrier to market
entry to outside firms that may induce prospective firms to offer
a product that might not have otherwise by protecting them from
the information and technological cannibalization effects that
emerge in markets without such exclusivity mechanisms.

Authors: Brian McGuckin, Ka-Wa Chan

Article:
http://www.reuters.com/article/newsOne/idUSTRE5654LK20090706?pageNumber
=1&virtualBrandChannel=0

This week, the F.D.A. publically warned consumers about possible suicidal thoughts and extreme depression associated with two popular drugs that aid in quitting smoking, Chantix and Zyban. The makers of both drugs have agreed to put warnings on these products to inform consumers of the recently discovered potential hazards.
These revelations concerning Chantix and Zyban are coming at a time when several other over-the-counter and prescription drugs are being cited for extremely harmful side effects. In all cases, the FDA has either required new warnings to be affixed to the products’ packaging or additional testing to take place. However, since all of these consequences have occurred after the products have been available in the market for some time, this may represent a partial failure of the FDA to detect dangerous substances before they are released. In order to protect itself from harsh public scrutiny and also to protect consumers in the long run, the FDA may decide to force new products to undergo more strenuous tests and trials before they are approved for general sale. This would represent an increase in costs and the time it takes to release a product for firms, which would therefore increase the cost of these products to society. The question is, will an increase in the cost of all new pharmaceuticals be worth the greater certainty that an extremely small percentage of these products will not harm a small portion of society?

Meredith Shores
Zach Ogaz
http://www.nytimes.com/2009/07/02/health/02drug.html?scp=2&sq=fda&st=cse

Taxing to benefit firms?

California is considering raising taxes on sales of medical marijuana, in an effort to increase the states revenue. The interesting aspect of this article is that the proposed increase was suggested by the vendors who sell the marijuana. This seems counter intuitive, as businesses want to decrease costs, and this would do the opposite and raise costs. Their rational is that by imposing a higher tax, the government will see and treat the vendors like other industries, and this leads the way to legalize marijuana, which is their ultimate goal.

This regulation seems shady, primarily because it was proposed by the firms themselves. This leads me to believe that they are proposing this not for the benefit of societal welfare, but rather for the benefit of the firm itself. That's true in this situation as well: the vendor industry wants this regulation to pass to increase their viability as a real business. They did a cost benefit analysis, and they have have accepted the costs of taxes because the benefits outweigh them. However, this may not lead to society being better off, as it only directly helps the firms.

California will have to closely monitor the vendors and how the new higher taxes affect them, in order to determine whether or not consumer are made better off. This seems unlikely though, as the state will get their higher revenue from taxes, and that will be a major plus from this policy. Because of this, the state is less likely to monitor welfare, as they will be getting more money, which is a main goal of the state. If the state can use those extra benefits to help improve the consumers, then that would make this a viable and effective policy. But they will also have to do a cost benefit analysis, and determine whether the revenue outweighs the possible consequences.

http://www.npr.org/templates/story/story.php?storyId=106071214

Tim Booth

Regulation to Regulate Personal freedom? or Social Welfare?

Chinese government introduced new regulation that every personal computers or official computers should mandatorily install new filtering software "Green Dam" to block pornographic content. This regulation may impact not only on internet industries, but also may impact on other industries and personal users in China. According to the some bloggers in china, he hacked the program and found that it may have ability to block not only pornographic content and word, but also have ability to shut down computers or close e-mail if some words appear that are against government.

The internet industry in china is really big since population in china is highest in the world. There are many firms based on internet. If all computer come out with the program porno industry based on internet will go out of business. I guess, porno industry based on internet is really big not just China, but all over the world. It may good for who want to control their children to stop search and use adult content. But, what about people who are old enough to use those adult contents and people who want to search something like sex health?

Also, people's freedom to speak out their pieces will regulate. The program may block harmful content and increase social welfare, but freedom of express one's opinion will also block. The Chinese government has to consider how it can affect to those things.

GooYong Chung
http://www.nydailynews.com/tech_guide/2009/06/22/2009-06-22_web_protest_planned_as_chinese_government_introduces_green_dam_filtering_program.html

But This One's Natural!

Trying to determine the eco-fabulous nature of goods on store shelves is not as easy as glancing at product labels. The reason: terms like “green” and “natural” have no reliably instructive meaning. This fact has real consequences for the market and seems to just beg for federal regulation.

Firms use wholesome-sounding phrases and pro-environment assertions to differentiate their products and woo consumers. In turn, consumers are not only willing to switch to greener products, but they also appear prepared to dig deeper into their wallets to buy such goods because they expect an added benefit—like reduced negative externalities—that justifies the added cost. This increased demand and willingness-to-pay presumably translates into gains for innovative firms that can develop truly environmentally-friendly products. However, without a clear way to discern the extent to which products live up to their green claims (if at all), society cannot realize as much (or any) of such anticipated benefits. To put it another way, consumers lack a rubric with which to sort through all the “green noise” in the market, and so they end up opting (and paying) for lesser products without making an informed choice. Innovative firms then watch their potential gains get competed away not by imitation that is equivalent in its benefits, but by imitation that is gray-green at best.

A way to diminish this market-frustrating asymmetric information problem is through the establishment of a national standard that (a) prescribes criteria for determining how “green” a product is—and how that measure is to be displayed on packages—and/or (b) spells out concrete definitions for what can be called “natural” and the like. Consumers would then have a more trusted and meaningful mechanism for evaluating goods, while firms looking to capture a share of this market would have an incentive to pursue R&D in hopes of introducing new products that could earn top-level environmental ratings or the right to use formerly ambiguous terms.

A green* post by Matthew Zawadski with support from Paola Durango.

*Refers only to the picture of basil

“American shoppers mislead by greenwash, Congress told” [The Guardian]
(Photo Credit: Matthew Zawadski)

Reform Needs Healthy Life Incentives

Jonathan Jackson

Joey Chadwick

James Petkovski

As of lately, healthcare 'reform' seems to be a hot political topic. This article addresses the regulatory cost and benefits related to health insurance. House Democrats hope that their major legislation will decrease the costs of healthcare, regardless of health status. Critics argue that the 'risk adjustment' associated with the legislation and the proposed regulations will impose higher costs on society, the private insurance market, and individuals in good health.

Economically, there are two questions that need to be addressed. First, why is regulation needed to reform healthcare in terms of cost related to health status? Second, do the inefficiencies of healthcare justify governmental invention? Inefficiencies in healthcare spawn from a variety of economic problems. One in particular is asymmetric information. Asymmetric information exists in the healthcare market, because insurers can't distinguish the healthy and unhealthy individuals. Therefore, the insurers have one premium they use as a fixed price for everyone, if the healthy people are paying the same as the unhealthy people they have incentive to drop out of the insurance policy and find a cheaper one. This phenomena will then represent a loss of profits, leading to inefficiency.

The justification of the House Democrat's legislation is whether in some way it can eliminate the information asymmetry in the heathcare market, and move to a more socially efficient outcome. If the private insurance market can do this by offering financial incentives to healthier people, then economics tells us government regulation is not needed. Although, this is a good method towards obtaining such efficiency, measuring and offering financial incentives towards healthy individuals is a difficult task.

Determining whether the House Democrat's solution will move society to a more optimal position in the healthcare market is really a function of what the private market operations are. The problem exist in the operation of offering financial incentives to different members under different insurance plans. Quite clearly , the Democrats proposed regulations are not pareto efficient as they will leave the private-sector worse off than before. However, the proposed legislation may clear up information asymmetry and market inefficiencies. Yet, that is to be determined.

http://online.wsj.com/article/SB124623169143066199.html