Munich Personal RePEc Archive

When organization encounters uncertainty in regulatory times

Xiao, Fenglong (2011): When organization encounters uncertainty in regulatory times. Published in: International Journal of Applied Business and Economic Research , Vol. 2, No. 9 (8. December 2011): pp. 177-184.

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Abstract

Regulatory policy is a considerable factor in organizational business strategy decisions. This article focuses on the organizational adjustment cost under uncertainty brought by regulation from game theory and contract theory perspective. Three conclusions are reached: 1. The cost of adjustment of organizations under regulation in a monopolized industry is only affected by their own risk tolerance of uncertainty and the cost of information; 2. when the regulation is enacted in a more competitive market, the cost of information would raise with a higher expected loss comparing with the same regulation in monopolized market; 3. If the claim of such measurement is true, the net benefit or loss of regulation is exactly the difference between organizational information cost and regulatory benefit. So the policy that guarantees the positive communication and transparent information exchange that helps to reduce the organizational information cost is necessary for an efficient regulatory policy.

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