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Economics of Regulation


Admission requirements

This course is for Master students Public Administration, track Economics and Governance only.


When do markets fail and what policy instruments can be used to correct these market failures? This is the central question in the course on the economics of regulation. Economists distinguish several potential causes of market failure: externalities, collective goods, imperfect competition, and information asymmetries. On top of this, the decision-making process by individuals is key for the scope and effectiveness of government policy that intends to improve the outcome of markets.

This course first explains why the stated market failures may give rise to welfare losses. Subsequently, we focus on policy options to correct market failure, especially market failure caused by externalities. What type of intervention can be expected to be efficient, depending on the circumstances? For instance, in case of externalities consumers or producers inflict harm on third parties. There are numerous policy instruments that can be used to correct for this potential harmful behaviour: liability rules, rule enforcement and taxes, etc. We will discuss the use of the social cost-benefit analysis as a way to structure decision making processes that intend to solve a market failure. We apply our insights to socially relevant topics such as climate policy, smoking and alcohol consumption. But the insights are also relevant in case of a pandemic.

Course objectives

By the end of this course, students will be able to:

  • identify whether potential causes of market failure are present in (stylised and applied) cases.

  • propose regulatory instruments to correct market failure in (stylised and applied) cases and analyse these instruments in terms of efficiency.

  • critically assess regulatory approaches in terms of efficiency.


On the Public Administration front page of the E-guide you will find links to the website and timetables, uSis and Brightspace.

Mode of instruction

The course consists of two general lectures and five interactive seminars. Attendance is not compulsory, but the discussions during the lectures and seminars are valuable as exam preparation.

  • Total course load 140 hours

  • Hours spent on attending seminars 16 hours

  • Time for studying compulsory literature and completing assignments 124 hours

Assessment method

The default assessment method under “normal circumstances ”is a written exam (100%) at the end of the course. However given the current circumstances this might be adjusted into a written take-home assessment in case the course or examination has to be organised online.

Students are expected to actively participate during the seminars. Students have to hand in weekly assignments before the start of the lecture or seminar. Every assignment handed in on time, and of sufficient content, yields a credit of 0.10 points on the final score, with a maximum of 0.5 credit points (so, 5 assignments handed in yields the maximum credit-point). The final grade is maximised at 10. The assignments contain exam material and can therefore be regarded as a good exam preparation.

To pass the course, the final grade of the exam (or written assessment) plus the credit points acquired on weekly assignments should be sufficient. There is no possibility to retake the weekly assignments, and the credit points are only valid in the current academic year.

Partial grades are only valid in the current academic year; partial grades will not remain valid after the exam and the resit of the course.

Reading list

To be announced, see Brightspace.


Register for every course and workgroup via uSis. Registration for courses and workgroups in uSis is possible from 16 December, 13.00h. Some courses and workgroups have a limited number of participants, so register on time (before the course starts). In uSis you can access your personal schedule and view your results.

Leiden University uses Brightspace as its online learning management system. After enrolment for the course in uSis you will be automatically enrolled in the Brightspace environment of this course.


Hendrik Vrijburg