No. 5




Government Policy on Licensing of Fields with Special Requirements

14 June 2002


RiTo No. 5, 2002

  • Diana Eerma

    Diana Eerma

    Associate Professor in Economic Policy, University of Tartu

The main goal of regulation is to benefit the social weal and create a macroeconomic environment that would ensure competitiveness.

The article draws a distinction between economic, social and administrative regulation.

Grounds for government intervention in the private sector are market barriers and situations where the market is not Pareto-effective. It is important to focus more on information barriers. In this case the government would be motivated by the consumer’s lack of information and the sense that the market is not offering enough in the way of information. One way of overcoming information barriers is to establish minimum standards and licenses. But in another sense a license is intrinsically a state-imposed market barrier or an entry hurdle.

Regulation of information-related problems has two main functions: ensuring minimum quality of goods and services and avoiding adverse social and ecological impacts.

In summary, licenses can be seen as barriers that restrict competition and are justified in cases of specific economic barriers (mainly information and mobility) and social and ecological risks.

One of the author’s potential categories of objectives for establishing licenses covers social, economic and administrative objectives. The hypothetical options suggested by the author involve alternatives to traditional regulation.

From the standpoint of efficacious targeting of licensing requirements, it is important to increase the transparency of the licensing process and avoid administrative overlapping in the issuing process by unambiguously identifying the objectives.

Full article in Estonian