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Economics of Regulation



When will markets fail and what are the possibilities to correct market failures? These are the central question in this course on the economics of regulation. In economics several potential causes of market failure are distinguished: externalities, collective goods, imperfect competition, and information asymmetries. This course first explains why these causes may give rise to welfare losses. The main focus is on possibilities to correct market failure. What type of intervention can be expected to be efficient, depending on the circumstances ?
In case of externalities, for instance, consumers or producers may inflict harm on third parties. There are numerous possibilities to influence potential harmful behavior: liability, rules and rule enforcement, taxes etc. Information asymmetries may, inter alia, result in welfare losses in insurance markets.

Learning objectives

After discussing theory, the theory is used to analyze real world examples.
By the end of this course, students will be able to:
• Identify whether potential causes of market failure are present in (stylized and real) cases.
• Propose regulatory instruments to correct market failure in (stylized and real) cases and analyze these instruments in terms of efficiency.
• Critically assess regulatory approaches in terms of efficiency.



Method of instruction

This course consists of interactive seminars and is compulsory

Study load

  • Total study load 140 hrs – contact hours: 26 – self study hours: 114

Method of assessment

Grading will be based on a final written assignment. Attendance and active participation in the seminars is required. Students have to hand in weekly assignments before the start of the seminar. Each assignment not received in time, will result in a reduction of 0.3 point from the final score.


Yes, available a month prior to the start of the course

Other course materials/literature

Literature and reader will be announced later on.


(To be completed)


Appointments with lecturers can be made via the economics secretariat. Send an email to:
Tel. 071-527 7756.