Question

What are the theories in lobbying standard setting how to apply those theories?

Answer 1

Public Interest Theory suggests that objective of regulations is to increase the benefit derived from social welfare and is the result of analysis of costs vs. benefits done to ascertain if the cost is more than the benefits derived or not. From the perspective of Public Interest Theory, decision to not issue regulation do not seem correct to me because the regulation for CSR could be embedded with Income Tax Act and Corporations Act and the cost associated with it would not have been much. Idea of self regulation may seem correct but after a point, investors do choose the company which gives them higher return and not the one which have better CSR records and so to be attractive to the investors, company may choose not to spend on CSR activities. Thus deafening the basic idea of self regulations from the perspective of Public Interest Theory.

However, the theory has its own flaws as it sometimes become hard to examine that how much regulation is needed and whether regulations are serving the purpose for which they were imposed in the interest of the public and not the regulator.

These problems lead to the formation of Interest Group Theory, which suggests that powerful and rich person or company’s form a group or cartel and influence the decision making by lobbying for making regulations which benefits them. Here, the other party to the group is legislature who wants to maintain their power by “supplying” regulation to those “demanders” who could provide them assistance in their goal to retain power.

However, in the given case there seems no lobbying to me from the industry’s side to introduce any regulation as such for the corporate social responsibilities. The only benefit they can score through legislature is of tax benefits here which they already have. Lobbying to form a regulation which makes it compulsory to them to spend on CSR is not tenable here.

Capture Theory was suggested by Nobel Prize laureate George Stigler. It is based upon the ironic instance where the regularity agency appointed to regulate the industries end up regulated by the industries. This is though the extreme instance where there is a very strong lobby group affecting the decision making not in just department. Decision by government of not introducing the regulation from the perspective of Capture Theory is not tenable.