Question

1. How is a decision by a government regulator that all companies must separately disclose, in their annual financial reports, the amount of expense incurred in relation to the training of employees and that the companies must also spend at 5% of their reported profits on training employees related to the Public Interest Theory?

Answer 1

Public Interest Theory is a part of welfare economics and emphasizes that regulation should maximize social welfare and that regulation is the result of a cost/benefit analysis done to determine if the cost to improve the operation of the market outweighs the amount of increased social welfare.

According to public interest theory, government regulations is the instrument for overcoming the disadvantages of imperfect competition, unbalanced market operation, missing markets and undesirable market results.

Regulation can improve the allocation by facilitating, maintaining, or imitating market operation. The exchange of goods and production factors in market assumes the definition, allocation and assertion of individual property rights and freedom to contract.

By imposing a regulation on companies that they should spend a certain percentage on training of the employees, the intent is to bring overall upliftment of the quality of the employee class in that particular area. A well trained group of employees can result in a better productivity of the company and thereby contributing to the economic development of the country.