1.

0 Introduction
This paper explores the use of public interest concept as a rationale to regulation. Our broad interest throughout this paper is to review the literature from microeconomics teaching regarding public interest theory as one of the contending theories that shape and dictates regulation. The concepts of regulation and public interest are complex (Weisbrod et al, 1978) and are not susceptible of any simple definition. Despite the numerous studies and the many contexts in which these two concepts have been used, no consensus has been agreed upon not even in an approximate as to what is meant by public interest theory and regulation. The review in this paper does not pursue to thrive in defining these two terms in a manner that will put the debate to rest, nevertheless, since we have set out to explore the public interest theory as a rationale to regulation, we will have to acknowledge and come to terms with the problem of defining the two terms public interest and regulation. The difficulty in defining public interest emanates from the fact that, there are many facets to public interest. To this end, this papers explores and will put emphasis on the existence or non-existence and misapprehensions of public interest theory of regulation (Hantke-Domas, 2003) and major factors influencing public interest are judicial, political and recognition from academics. In the regulatory arena, it has proved to determine as to whether regulators make decisions in the public interest or in their self-interests (Hantke-Domas, 2003; Nowell & Tschirhart, 1993). The selfinterests are usually linked with the need to strengthen their political gains and support, and this can be achieved through attaining resources from the interest groups whose wealth is affected by the regulatory decisions (Stigler, 1971; Becker, 1983; Peltzman, 1976; Hantke-Domas, 2003; Nowell & Tschirhart, 1993). A contending theory developed by Stigler (1971) The Chicago theory (also known economic or interest group) theory of regulation distillates on self-interest as the major motivating factor, and this theory has gained a noteworthy and an impressive following by many scholars in recent years comparative to the all but discarded public interest theory(Posner, 1974; Wettergreen, 1989). To this end, this paper also reviews recent literature advocating for the reconsideration public interests role in regulatory decisions and states roles in serving public interest. This study drew most of its arguments from documents spanning from the judicial instruments (such as case law, acts of parliament), through government policies, publications such as research to academic works such as journal articles and text books covering public interest and related subjects. Due to the nature and age of the subject under study, an exhaustive review is an insurmountable, hence some selected classic texts dating back as far as the 1970s have to be consulted; nevertheless, care was exercise to ensure the majority of the consulted literature is from the recent past. The

subsequent sections present a detailed review of the public interest theory in relation to law, politics and academia, seeking to address the issue of the dearth of and imprecise evidence and knowledge to substantiate public interest theory of regulation (Hantke-Domas, 2003).

2.0 Theoretical Framework - Public Interest

It is of paramount importance and seems reasonable to begin our exploration by examining and seeking understanding of the term, public interest since it forms the descriptive part of the phrase public interest theory of regulation. Throughout history, public interest has been used to justify democracy, authoritarianism, communitarianism, egalitarianism and government regulation to ameliorate identified market failures (monopoly, public goods, information asymmetry and externalities) and economic welfare (Hantke-Domas, 2003; Stigler, 1971; Sinha, 1999; Bozeman, 2007). The concept of public interest has also, historically, influenced the judiciary of which its implications, we are still living with them to this present day (Hantke-Domas, 2003; Harrington, 1996; Arrow, 1985). Even to this present day, the same concept remains key and central in discussions shaping regulation, such regulation, amongst others, in the telecommunications and broadcasting industries where the universal service obligation (USO) and public interest are inseparable (Joskow & Noll, 1981). We see this concept of the public interest, traditionally justifying the argument that regulation seeks to protect and serve the public interest ((Posner, 1974; Feintuck, 2001; Horwitz, 1989; McQuail, 2001; Napoli 2001; Croteau & Hoynes, 2003; Stigler, 1971). Furthermore, public interest can be viewed as the best means of managing and apportionment of scarce resources for individual and collective goods. One such way of attaining efficiency in resources allotment (allocative effeciency) is through government regulation (Arrow, 1970; Shubik, 1970). Tanguay, Lanoe, & Moreau (2004) concur with the other authors when they say, Micro-economic theory tells us that governments are justified in intervening in the economy in the presence of externalities such as pollution, since their presence constitutes an obstacle to optimum resource allocation. In the short of it, most writers come to a common general understanding that, public interest forms the basis for government regulation to deal with undesirable market results. At this juncture, it is necessary to go deepe and beyond into the subject and attempt to define the term public interst. Despite being far and wide written about, disscused and the common occurrence of the term public interst, there is no consensus as to what the definition of public interest should be. Campbell, as cited in Hantke-Domas ( 2003) defined public interest as:

..does not mean that which is interesting as gratifying curiosity or love of information or ammusement; but that in which a class of the community have a pecuniary interest or some interest by which their legal rights or liabilities are affected. Weisbrod, Handler & Komesar( 1978) adopt a slightly more descriptive way of defining public interest, which they define as: Public interest as that portion of the voluntary, non-profit class of organisation that is engaged in public interest activities those activities that have a sizeable collectiveconsumption or external benefit component. The authors go an extra mile exaplaining Public interest activity as one that, if it is successful, will bring about significant external gross benefits to some persons; that is, the activity provide more complete representation for some interest that is under-represented in the sense that the interest has not been fully transmitted through either the private market or governmental channels (Weisbrod, Handler & Komesar, 1978 pp.20). Of noteworthy from the two definitions above is the idea of catering for the group, which under profit economic dealings, will have been excluded. We shall adopt this notion throughout our discussion. In a quest understand the subtle relationship between public interest and regulation; we shall adopt the definition of regulation, as defined by Mitnick (1980) as: is the public administrative policy of private activity with respect to a rule prescribed in the public interest (pp.7). This definition has three integral parts. Firstly, regulation is restraining and intended towards private activities. Secondly, it hinges on administrative or governmental reins undertaken on the basis of general rules. And thirdly, the rules and their enactment are by insinuation beneficial to the public interest (Christensen, 2010). As we subsequently delve into the subject matter in the following sections, we seek to explain public interest as a rationale to regulation.

2.1 Public Interest Theory of Regulation

True to its name, the public interest theory of regulation arose historically from the need to protect individuals in the face of private interests. Public interest theory of regulation stems from the school of thought that regulation needed to be established to counter the conflict between private profit making institutions and the general welfare of society (Golding and Murdock 1997). This concept of public interest can be further pronounced as the optimal way of equitable distribution of scarce resources for individual and collective goods (Arrow, 1985). Therefore, acts of parliaments,

government policies, and regulatory agencies were created to protect the interests of the public and their welfare (Golding & Murdock, 1997; Hantke-Domas, 2003; Posner, 1974). This stance was seen as the plausible way of just thinning out of collective goods and democratic reform (Golding and Murdock 1997). Theoretically, it can be proved and verified that, under certain settings, the allocation of resources can be optimally achieved by means of the market mechanisms (Arrow, 1985). However, due to the fact that, these conditions are habitually not observed in practice, the allocation of resources is not optimal and hence therefore, a demand for ways and means for improving the allocation arises. Arguably, one of such methods of achieving allocative efficiency is government regulation in order to maximize social welfare (Posner, 1974; Stigler, 1971; HantkeDomas, 2003). den Hertog, 1999 concur with the preceding cited authors puts it rightly by saying, According to public interest theory, government regulation is the instrument for overcoming the disadvantages of imperfect competition, unbalanced market operation, missing markets and undesirable market results (den Hertog, 1999 pp.225). Historically, the public interest theory of regulation has progressed through two key phases. Public interest theory of regulation has been in existence and dates back since the ancient times. The first early chapter refers to the anti-monopoly activism of the agrarian social movement, in which regulation protected the individual producer. Examples are drawn from the American and the British history and experience, where politicians and the judicial systems, where its public interest shaped the concept of anti-trust and common law dealing with just price shared by medieval political philosophers (Stigler, 1971). However, the theory did not have a clear definition by then, hence causing a lot of controversies within academics who attempted to advance differing understandings of the precise use of the concept of public interest in politics (Hantke-Domas, 2003; Stigler, 1971). Renowned authors (Joskow & Noll, 1981; den Hertog, 1999; Aranson, 1990) concur will former authors (Stigler, 1971; Posner, 1974) that public interest theory form an integral part of welfare economics, nonetheless the none of these authors attributed the formation of the theory to anyone suggesting the origin of the concept is unknown and henceforth further postulates that the public interest theory of regulation does not exist (Stigler, 1971). The second episode of public interest theory of regulation was through the Progressive Era where many decisions were allegedly taken in the light of public interest, seeking to protect the consumer because of the altered economic conditions created by the large corporations (Golding & Murdock, 199,7 pp.387). During this period, through literature, we witness the birth of the American regulatory state where the authority over financial industry, transportation food and drug industry expanded (Stigler, 1971; Hantke-Domas, 2003). Differing regulatory views ensued and one such was public interest that debates the federal regulation arose to replace state and local governments as they had failed to redress market failures. In this phase, the corporations created the contemporary mass consumer,

thus the Progressive Era reformers interested in improving consumer welfare argued and pressed the notion of the public interest theory of regulation, identifying it with the interests of consumers (Golding & Murdock 1997; Law & Libecap, 2006). Despite the voluminous historical literature supportive of this account, it remains vague why regulation was favored upon the judicial (courts) system to safeguard the powerless consumers (Golding & Murdock 1997; Glaeser & Shleifer, 2003). Golding & Murdock (1997) argued that, traversing through these two phases, the public interest theory of regulation flipped from safeguarding the individual as producer through to protecting the individual as consumer. The same argument gained support from Kolko as cited in Law & Libecap (2006), Stigler (1971), Libecap (1992) and Peltzman(1976) through their shared views that, regulation in the view of public interest is aimed at solving market failures. On the other hand, the same authors shared the same view that highlights the role of regulation to advance specific producer interest rather than the efficiency gained from regulation. For example, under the American federal regulatory state, we note burgeoning literature intoning how food was adulterated and its consequences to health and longevity (Law & Libecap, 2006). Allude to Strasser (1989), Relatively we are in a state of barbarous innocence, as compared to our grandmothers, about the common articles of daily use (pp.255); clearly demonstrate the issue asymmetric information regarding the food ingredient giving rise to the perception that there was a lemons problem in the food and drug market. The historic Pure Food and Drugs Acts suggest that the Progressive Era reformers, in an attempt to protect the public interest and the public at large, contributed to the federal food and drug regulation (Law & Libecap, 2006; Golding &Murdock, 1997) and this provides support for the public interest theory of regulation. Evidence that the Pure Food and Drugs Act substantially reduced asymmetric information regarding food and drugs quality can be proven, nevertheless, no documented success cases as to whether the public interests were achieved (Law & Libecap, 2006; Law , 2004; Robinson, 1900; Young, 1992), hence therefore further denting the empirical evidence for public interest theory of regulation and render it a feeble theory (Stigler, 1971; Posner, 1974). Despite its fragile standpoint, the classical public interest theory of regulation, still gained respect to be used as an acid test to assess regulation in line with public interests (Golding & Murdock, 1997), influenced states regulatory decisions and contributed to the birth of regulatory agency (Golding &Murdock, 1997).

2.2 Criticism of Public Interest Theory

Reviewing the concept of public interest theory, and the definition of the regulation discussed here, it is tempting to credit regulatory success stories to public interest theory. The idea that regulation

can be explained as a panacea to market failures has faced stern criticism from numerous points of view. The Journal of Law and Economics (JLE - Chicago based journal) was amongst the first publications, as early as 1958, to critique and interrogate the effects of public regulation (Goran & Hagg, 1997). According to Priest (1993), in his perception, suggests that the Journal of Law and Economics articles mission was to expose the nominal excuse for regulation and demonstrate its adverse effects (Goran & Hagg, 1997). The first dimension of criticism is towards the theory of market failure which underpins the concept of government regulation (Cowen, 1988). Goran & Hagg (1997) exaplain that market mechanism offers alternative to deal with harmful economic effects. The public interest discourse suffered further attack from contending theoretical contributions which offered other market conformed means compensate for any inefficiencies (Coase, 1974; Goran & Hagg, 1997; Posner, 1974). The public interest theory stance that inefficient allocation of resources emanates from monopoly power or external effects is founded on the assumption of a model in which transaction costs are absent. This is refuted by Dahlman (1979) and Toumanoff (1984) when they argued that the allocation of resources appears efficient if transaction costs are included in the analysis. Another dimension of the critique was presented by Demsetz (1976) when he criticized the reasons to have one supplier of public utilities arguing that due to economies of scale that does not preclude numerous bidders when licensing a monopoly. The second facet of the theorys criticism came when Posner (1974) criticized his own assumption which as an integral part to depict the public interest theory. The assumption stated the nonexistence of transaction cost and that government regulation is effective, nonetheless, Posner(1974) later repudiated that when he argued that enforcing government regulation came with transactional costs (i.e. personnel, buildings, etc.). The same sentiment was shared by Averch & Johnson (cited in Golding & Murdock, 1997) when they presented a more technical critique arguing that under reasonable rpreconditions, costs were expected to be padded such incentives to invest. Both empirical and theoretical research provided evidence for the dismal of the assumption that government regulation is without costs. Other theoretical research outlines the problem of information asymmetry arguing that the information provided to the regulators is flawed (Sappington and Stiglitz, 1987). Further empirical research into the effectiveness of government regulation also gives rise to criticism of the public interest theory (Joskow & Rose, 1989; Posner, 1971). To this end, it can be stated that public welfare or social regulation is barely if at all possible to enumerate the benefits it derives. The points of criticism argued above make clearly demonstrated that the base of public interest theory is unsound (den Hertog, 1999). Another weakness of the theory is presented when (Joskow & Noll, 1981) attempt to reinforce Posners assumptionlinkking public interst theroy and market failures(Posner, 1974). They assumed public interest theory of regulation is a normative theory of

welfare economics (Hantke-Domas, 2003). They (Joskow and Noll, 1981), characterized it as normative theory of economic welfare using a positive explanatory theory of regulation arguing that: The essence of this normative analysis as a positive theory is that one begins an analysis of regulatory process with the assumption that its purpose is to maximize some universal measure of economic welfare, such as consumer surplus or total surplus (pp. 36). The key problem of this is; the authors did not define either normative or positive economics neither did they provided an explanation of normative theory of welfare, hence the problem of subjectivism of normative analysis cannot be ignored. Final criticism focuses on the incompleteness of the public interest theory. Two important points to note are, firstly, it is difficult to point out how a given view on the public interest translates into legislative actions that maximize economic welfare (Posner, 1974). Secondly, a theory of regulation should be able to foresee either industry or sector specific regulation should be ensued outlining the pros and cons and form of regulation to take, such as subsidies, restricted entry, or price regulations (Stigler, 1971). Despite the efforts of various scholars, no evidence has been presented supporting the origin of the theory. It is of paramount importance to note and acknowledge Stiglers (1971) and Posners (1974) remarkable works towards the public interest theory, nevertheless there is still a dearth of and imprecise evidence and knowledge to support public interest theory, as HantkeDomas puts it, . . . without finding any source constructing a theory of regulation based on public interst, it is posible to argue that the Public Interest Theory is not a theory (p.188). In this section, we reviewed the criticism against the public interest theory of regulation. The following section briefly explores the new version of public interest theory of regulation in light of the criticism presented here.

2.3 Urbane Form of Public Interest Theory

Noll, (cited in den Hertog, 1999) is of the opinion that criticism of the public interest theory has provoked and led to a more serious public interest theory. In the preceding section, we noted that according to the classical public interest theory, regulation can be accounted for by market failure. The implication is the assumption of non-existence transaction costs (Posner, 1974) and freely available, usefully processed information in the political process suggesting that the problem of flawed and or information asymmetry does not exist (Golding & Murdock, 1997). Foregoing these assumptions, definitely will give rise to a more cultured type of the public interest theory and hence therefore possible to see regulation as an answer to market failure, taking into consideration the padded costs of transaction and information. However, this approach to public interest theory does

not therefore imply regulation to be perfect (den Hertog, 1999). The urbane form of public interest theory assumes and acknowledges that market failure exists; however, it postulates that that regulation is the most effective way of combating the failure. The theory further suggests that regulation ceases to be a solution to market failure when the costs outweigh the benefits. Further to that, it assumes politics to be supportive through transparent decision-making. However, this does not present a solution to all as there is not empirical evidence to support the argument.

3.0 Conclusion
Literature have more often presented economic theories on regulation as if there exist conflicting opinions among economists on the rationale for regulation (Goran & Hagg, 1997), i.e., if the regulation serves the public interest or some special interests. In this paper, we noted the public interest approach being viewed as supplying the judicial with the basis to resolve disputes which are of public benefit. Despite the voluminous literature on public interest, empirical evidence, presented by academics showed that in numerous cases, the public interest theory was misconstrued to protect personal interests of politicians and policy makers at the expense of the public at large. This was prevalent during the progressive era. The theory also suffered injustice from the academic realm, as there is not enough and precise scholarly evidence to support the existence of the theory hence rendering it disqualifying it as a theory. The existing literature also fall short in explain the linkages between public interest theory and welfare economics (Hantke-Domas, 2003). The paper also reviewed criticism against the concept mainly from the academics, outlaying the dearth of and imprecise evidence and knowledge to support and defend the classical theory of public interest theory of regulation on a sound empirical base (Christensen, 2010; Hantke-Domas, 2003). The irony of the criticism from the academics is none of them makes an effort to formulate or develop supporting evidence for the theory, but rather regurgitate previous views by other authors. The majority of the empirical literature on regulations is concentrated on the U.S and European industries. Little exploration has been done on the available data from other developed and developing countries. Since, in the recent past government regulation has become an increasingly important factor in our economy, with many important questions still remain with no answers, scholarly interest in regulatory economics will continue and even increase in the future, to, at least answer the misconception around public interest theory of regulation.

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