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Economics of Regulation



When will markets fail and what policy instruments can be used to correct market failures? These are the central question in this 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 validity of the assumptions regarding human rationality are key for the scope and effectiveness of government policy that intends to improve social welfare.

This course first explains why the stated market failures may give rise to welfare losses. Subsequently, we focus 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 inflict harm on third parties. There are numerous possibilities to correct for this potential harmful behavior: liability, rules and rule enforcement, taxes etc. Information asymmetries may, inter alia, result in welfare losses in insurance markets. We will apply our insights to politically relevant topics like environmental policy and health care policy.

Course objectives

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

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

  • Propose regulatory instruments to correct market failure in (stylized and applied) cases and analyze 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 Blackboard.

Mode of instruction

The course consists of interactive seminars. Attendance and active participation is compulsory.

Course Load

  • Total course load 140 hours

  • Hours spent on attending seminars 21

  • Time four studying compulsory literature and completing assignments 119

Assessment method

Grading will be based on two individual papers of maximum 5 pages each. To pass the course, students have to hand in the first paper before the fourth lecture. To pass the course, students have to hand in the second paper before the end of the exam-period (exact date to be announced in the first lecture).

The course can only be passed when both papers receive a sufficient grade. In case a paper receives an insufficient grade, students must hand in an improved version three weeks after the grades are published. The final grade for the course equals 0.4 times the grade on the first paper plus 0.6 times the grade of the second paper.

Attendance and active participation in the seminars is required. Students have to hand in weekly assignments before the start of the seminar. These weekly assignments will be brief (around one page), the content of these assignment will be topic-specific and communicated in the final course description. Each assignment not received in time, will result in a reduction of 0.3 point from the final score


Blackboard will be available one month before the start of the course.

Reading list

TBA, see blackboard.


Use both uSis and Blackboard to register for every course.

Register for every course and workgroup via uSis. 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. Registration in uSis is possible from four weeks before the start of the course.

Also register for every course in Blackboard. Important information about the course is posted there.


Hendrik Vrijburg