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Economics of Regulation



When will 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 possibilities 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 possibilities to correct for this potential harmful behavior: 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 like environmental policy and smoking.

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 two general lectures and five interactive seminars. Attendance is compulsory.

Course Load

  • Total course load 140 hours

  • Hours spent on attending seminars 21

  • Examination 5 hours

  • Time four studying compulsory literature and completing assignments 117

Assessment method

There will be an exam at the end of the course.

Students are expected to actively participate during the seminars. Students have to hand in weekly assignments before the start of the lecture or seminar. These weekly assignments will be brief (around one page). Every assignment handed in on time, and of sufficient content, yields a credit of 0.10 points on the final score (where the final grade is maximized 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 (including 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.


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