Accounting Theory

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Accounting Theory

Accounting Theory


This paper intends to explore various theories of Accounting, such as Public Interest theory, Capture theory and Economics interest theory. Mainly this paper answers the two given questions; where the first answer explains the introduction of legislation by the government and relates it with the above mentioned theories. Further, second answer to the question explains the cost benefit analysis and that how different countries have different standards in terms of cost benefit analysis.


Q.1 Explain from a public interest theory perspective the rationale for the government introducing the legislation and how the government will ultimately assess whether any proposed legislation should actually be introduced. Predict from a capture theory perspective the types of constitutions that will benefit in the long run from any social and environmental disclosure legislation.

Introduction of public interest theory with example and how it link to public interest theory Public Interest Theory of Regulation

The idea that regulators are motivated to maximize social welfare by lowering prices and reducing deadweight losses forms the foundation of a theory of regulation commonly referred to as the public interest theory of regulation.

The essential validity of this theory was challenged by several scholars, starting in the 1960s. In a very influential article, George Stigler and Claire Friedland (1962) study prices charged to consumers by electric utilities in states where some regulation existed and compared them with rates levied in states with no regulation. They find, contrary to what the public interest theory would predict, no statistical difference in prices between these groups of states. Although this prompted many follow-up empirical studies, some of which confirm Stilger and Friedland and some of which refute their findings, there is little doubt that this study prompted economists to reconsider the public interest theory of regulation. Indeed, in a detailed and often-cited review of regulation in the United States, Richard Posner (1974) concludes that there is little correlation between regulation and the correction of externalities or the curbing of monopoly power. Clearly, revising regulatory motivation was in order (Stigler, 1971).

Economic Theory of Regulation

Development of an alternative theory of regulatory behavior is rooted in four seminal studies: Mancur Olson (1965), Stigler (1971), Sam Peltzman (1976), and Gary Becker (1983). Stigler, building on Olson's work on the rationale for collective action, addresses these fundamental questions: Why is there regulation? How is it implemented? He then sets forth a series of general assumptions that would enable predictions as to which sectors of the economy would be subject to regulation and which would not (Posner, 1974).

Stilger and Peltzman Models

The basic insight and structure of the theory is as follows. First, Stigler (1971) asserts that government is unique in its power to coerce agents in an economy to act or behave in certain ways. An interest group, such as an industry or a labor union, that can influence the government to employ its power of coercion to meet the desires of that group, stands to gain. Therefore, there is in fact a market for political influence, the supply of which ...
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