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Regulation is define as a rule of order having the force of law, prescribed by a superior or
competent authority e.g. (NACADA, ERC, PPOA, among others), relating to the actions of
those under the authority's control.
Consumers must be protect from business owners who are eager to sell without taking into
consideration the wellbeing of customers. Consumers must be protect from overcharging,
poor quality goods and services , short measures and weights by the consumers protection
laws like; the food and drug act, the standard act ,public health act, the weights and measures
act, the processed food act and the hire purchase act.
The petroleum sub sector was regulated by the petroleum (Exploration and production Act
1994 and the petroleum development Act no. 4 of 1991. The energy act 2006 consolidated all
laws relating to energy and provide for the establishment of the energy regulatory
commission(ERC) as a single sector regulatory agency with responsibility for economic and
technical of electric power, renewable energy and petroleum sub sectors. these reforms were
preceded by the enactment of the restrict trade, monopolies and price control act of 1989
which aim at promoting competition and reducing direct of prices in the entire economy and
more recently the competition act 2009, which seeks to promote and safeguard competition in
the economy. It also promotes consumers from unfair and misleading markets conduct to
provide for the establishment, power and functions of the competition tribunal and connected
Regulations are issued by various government departments and agencies to carry out the
intent of legislation enacted by parliament. Regulation is a mechanism to insist that public
purposes be respected by businesses and other nongovernmental institutions in their
operations (Lehne, 2006). Our understanding of the role of regulation in the relationship
between government and private institutions is dominated by two basic theories the public
interest theory and the private interest theory (Mitnick, 1980). According to the public
interest theory, regulation is instituted for the protection and benefit of the public at large or
some large subclass of the public. Most analysis based on this view present regulation as a
response to market failure (Bernstein, 1955) by, for example, seeking to achieve the benefits
of market place competition for consumers and society in situations in which competition
does not occur.
Historical and empirical evidence show that regulatory arbitrage is a significant contributing
factor behind the failure of financial institutions. In Japan, credit cooperatives were subject to
looser supervision and regulation than those applied to banks, a fact which allowed them to

engage in more risky banking activities than in the banks. These relaxed restrictions on their
lending to non-members enabled them to engage in unhealthy competition in the credit
market, which indirectly contributed to the weakening of all financial institutions (Kanaya &
Woo, 2000).
Stewart, 2006 since colonial times, government has regulated business. The need for more
responsive and effective business regulation was at least part of the reason for the fight for
independence and the establishment of the federal government. As the U.S. economy became
more industrialized and the United States grew to be a world power in the nineteenth century,
the federal government passed business laws that favoured social reforms over the interests of
big business. In the twentieth century, government involvement continued to expand until the
1970s, when both business and the public began to call for less regulation. At the beginning
of the twenty-first century, the ruinous effects that utility deregulation had on California's
economy and the corporate accounting scandals that came to light in late 2001 raised the
possibility of a new era of federal intervention into business practices.

They are simple to understand

It is possible to fine or close down companies which have abused the regulations

May help to reduce the problem of asymmetric information


It is expensive to monitor the behaviour of firms

There may be an extra cost to firms

Regulations prevent the operation of the price mechanism

Government failure may occur if the regulations serve to misallocate resources.

Deregulation involves removing government legislation and laws in a particular market.
Deregulation often refers to removing barriers to competition.
For example, in the Kenya, many industries used to be a state monopoly e.g. Kenya Posta
however, deregulation allowed new firms to enter these markets and reduce the monopoly
power of these state owned industries. This process of deregulation was often accompanied
by privatisation. (Selling of state owned assets to private sector)
A good example of deregulation is mail delivery. For many years, the government owned
Kenya Posta had a legal monopoly on delivering letters and parcels. The Kenya Posta had a
duty to deliver a letter anywhere in the Kenya, but competition was not allowed.
First competition was allowed in parcels, and then any licensed operator is allowed to deliver
letters and parcels to business and residential customers.
Advantages of Deregulation

Increased competition acts as a spur to greater efficiency, leading to lower costs and
prices for consumers.

Government regulation often involves excessive costs of bureaucracy. It generally

lowers barriers to entry into industries, which assists with improving innovation,
entrepreneurship, competition and efficiency. This leads to lower prices for customers
and improved quality

Producers have less control over competitors and this can encourage market entry.

It benefits the economy because taxpayers no longer have to pay for the expenses of
operating regulatory agencies. This means that consumers have more discretionary
income and therefore more money to spend on other items

It helps to increase choices and lower prices for consumers

Businesses can formulate their own strategies and processes without government

It allows market forces to control the industry where the customer is the king in a
market economy.

Disadvantages of Deregulation

It can be difficult to create effective competition in an industry which is a natural

monopoly high barriers to entry. Deregulation may create a private firm with
monopoly power.

Deregulation could lead to a compromise of public services with poorer quality


Allows asset bubbles to build and burst creating crises and recessions

Prevents industries with huge initial infrastructure costs like electricity and cable to
get started.

Exposes people to fraud and excessive risk taking by companies that will do anything
to gain higher profits

Social concerns are lost. For example businesses will ignore damage to the
environment since they dont pay the cost

Rural and other unprofitable populations are underserved


1. Market Catalyst

The government can implement a policy that changes the social behaviour in the business
environment. For example, the government can levy taxes on the use of carbon-based fuels
and grant subsidies for businesses that use renewable energy. The government can underwrite
the development of new technology that will bring the necessary change. Imposing on a
particular sector more taxes or duties than are necessary will make the investors lose interest
in that sector. Similarly, tax and duty exemptions on a particular sector trigger investment in
it and may generate growth. For example, a high tax rate on imported goods may encourage
local production of the same goods. On the other hand, a high tax rate for raw materials
hampers domestic production.
2. Political Stability
Government policy will always depend on the political culture of the moment. Policy crafted
in a politically stable country will be different that formed in an unstable country. A stable
political system can make business-friendly decisions that promote local businesses and
attract foreign investors. Unstable systems present challenges that jeopardize the ability of
government to maintain law and order. This has a negative effect on the business
3. Government Spending
Governments get money to spend from taxation. Increased spending requires increases in
taxes or borrowing. Any tax increase will discourage investment, especially among
entrepreneurs, who take the risks of starting and managing businesses. Increased spending
also eats into the limited pool of savings, leaving less money for private investment.
Reduction in private investments shrinks production of goods and services. That, in turn, may
lead to the elimination of jobs.
4. Interest Rates
Government policy can influence interest rates, a rise in which increases the cost of
borrowing in the business community. Higher rates also lead to decreased consumer
spending. Lower interest rates attract investment as businesses increase production. The
government can influence interest rates in the short run by printing more money, which might
eventually lead to inflation. Businesses do not thrive when there is a high level of inflation.

5. Regulations
Trade regulations, the federal minimum wage, and the requirements for permits or licenses
have effects on business. For example, periodic health inspections must be carried out in all
restaurants. Businesses might spend a lot of money and time to comply with regulations that
ultimately prove to be ineffective and unnecessary. Fair and effective regulations, however,
promote business growth.
Bernstein, M. H. (1955). Regulating business by independent commissions. Princeton:
Princeton University Press.
Kanaya, A. & Woo, D. (2000). The Japanese banking crisis of the 1990s: Success and
lessons. IMF Working Paper, International Monetary Fund. Retrieved April 6, 2009
Lehne, R. (2006). Government and Business: American political economy incomparative
perspective. Washington, DC: CQ Press.
Mitnick, B. M. (1980). The political economy of regulation: Creating, designing and
removing Regulatory reforms. New York: Columbia University Press.
W.J. Stewart, 2006, Collins Dictionary of Law