1
Focus on Ethics:
Government Regulation
INTRODUCTION
This Focus on Ethics feature looks at selected examples of some of the ways in which government regulation
reflects the trade-offs that society has been willing to make in the interests of protecting consumers, the environment,
and free competition in our society. Ethical issues in government regulation arise because regulation, by its nature,
means that some rights and freedoms have to be given up to ensure that others are protected. Regulation brings two
ethical principles into conflict. On the one hand, deeply embedded in American culture is the idea that the government
should play a limited role in directing our lives. On the other hand, the basic functions of government include the
protection of constitutional rights and competition in the marketplace.
FOCUS OUTLINE
I. Television Programmers and Antitrust Law
When consumers want cable or satellite television programming, they cannot order only the channels that
they want—they are forced to pay for some unwanted channels in a multichannel package. A group of
consumers filed a suit against television programmers and distributors, alleging that the “bundling” of
2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
multichannel packages violated antitrust law. The U.S. Court of Appeals for the Ninth Circuit ruled in favor of
the defendants, citing the competition among them for viewers.
II. Credit Reporting Agencies and “Blacklisting”
Some credit reporting agencies report on individuals’ litigation history, which may be of interest to landlords
and medical professionals. Some agencies do not allow consumers to review this information. Consumer
advocates oppose both practices, comparing the former to discriminatory “blacklisting” and labeling the latter
unfair. A consumer might pursue a claim against an agency for dissemination of false information.
III. Privacy Concerns and the Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA) prohibits disclosures about a debt to third parties. Leaving a
voice message regarding a debt collection on an answering machine may constitute such a disclosure,
depending on the circumstances and the jurisdiction. Cases have gone both ways, holding that a voice
message violates the FDCPA because it was, or might be, overheard by a third party and that it does not
violate the FDCPA if it does not identify the debtor or the debt.
IV. Environmental Law
Ethical dilemmas in regard to environmental law include whether the government has gone too far in
regulating businesses in the interest of protecting the environment. Has it gone far enough? At what point are
the costs of regulations too much for society to bear? How much it will cost to clean up all of America’s toxic
waste dumps is not certain, partly because the extent of contamination is unknown and partly because there
is no agreed-on standard as to how clean a site should be. Who should pay?
V. Concerns over Pharmaceuticals in Drinking Water
Trace amounts of drugs have been detected in our water supply. Some comes from unmetabolized drugs that
pass through those who ingest them, but the rest has been literally flushed down the toilet—largely on the
advice of pharmacists, physicians, and the federal government to keep the drugs from being abused.
Environmental effects are not known. Requiring that water be tested and that all traces of drugs be filtered
from it would be enormously expensive.
VI. Global Environmental Issues
What one nation does with respect to environmental issues can affect what happens in other nations.
Countries have made attempts to reduce cross-border pollution, under treaties and other agreements, but this
remains a challenging issue.
A. CLIMATE CHANGE
The Kyoto Protocol set different rates of reduction in greenhouse-effect emissions for different countries
and regions. Most nations, including the United States, will not meet the goals.
B. IS ECONOMIC DEVELOPMENT THE ANSWER?
Economic development may lead to pollution reduction because richer nations have the financial
resources to pay for it.
UNIT SIX: FOCUS ON ETHICS—GOVERNMENT REGULATION 3
TEACHING SUGGESTIONS
1. Domestic manufacturers cannot always compete with foreign companies in terms of price. Sometimes
foreign-made goods are less safe. But domestic designers and importers have also been found to be the
source of safety lapses, which could be ascribed to the products’ specifications. The trade-off for safer
products, of course, is the price.
As an illustration that regulation may not always be in the best interests of those that it is intended to
benefit, point out that, due to the United States’s testing process for new products and drugs (which may be
the most stringent in the world), many products are available in other countries long before they are available
in the United States. This is often underscored by events, most recently in connection with drugs marketed
abroad for the treatment of AIDS and Alzheimer’s disease. Ask students to consider the social costs of this
extended testing. At what point do the costs outweigh the benefits?
2. Create a hypothetical based on an actual administrative regulation, including some of the evidence and
other factors that the agency considered in issuing (or deciding not to issue) a specific regulation. Without
disclosing the actual result, ask students to weigh the factors and come to their own regulatory conclusion.
After they reach their decisions and “issue” their regulations, present the results of “new” studies that could
affect those regulations, including added costs of compliance, increased unexpected benefits, data that
suggests the regulations did not go far enough, or went too far, etc. The point is to underscore the competing
considerations in determining whether and how much to regulate.
3. Explain that from an ethical perspective, government regulation is problematic because it imposes
significant costs on American society (the cost to operate the agency, the cost to comply with its regulations).
The benefits are not as easily quantifiable (for instance, what is the value of a human life?). In any case,
government agencies generally weigh these, and other, factors and make a decision as to the extent of
regulation. Given the choice, many of us might make different decisions.
Cyberlaw Link
As banking and bill-paying, and other credit transactions go online, what protections should be
implemented to safeguard consumers? Whether or not it is illegal to “crack” encryption code, is there
an ethical obligation to keep such “cracks” relatively secret to avoid their use by irresponsible
hacker? Or should defects be publicized to inhibit the use of the code?
ADDITIONAL QUESTIONS
1. What is the conflict many businesses face in acting to protect the environment? Generally, environ-
mental protection involves costs that must be absorbed by shareholders, consumers, or employees, in the form of
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
2. Is government regulation is necessary to reduce environmental destruction? It can be argued that
government regulation in this area is needed, because in our competitive economic system, companies normally
3. Is government regulation entirely beneficial? No, not even for its intended beneficiaries. For example, rent
4. What is the guiding principle of antitrust law? The guiding principle of antitrust law is to promote
competition. How has the Robinson-Patman Act been used to undercut this principle? Small firms have used
businesspersons, and economists have criticized this use of the statute as anticompetitive. How does antitrust law
hinder international competitiveness? For the most part, antitrust law inhibits rivals’ cooperation in developing and
ACTIVITY AND RESEARCH ASSIGNMENT
If businesses were freed of government regulation and conducted their affairs restrained only by ethi–
cal assumptions, would consumers, employees, and competitors be treated fairly and the environment be
protected? This question could be posed to the class as a whole, discussed in small groups, or assigned as a re–
search topic. Adam Smith believed that man was a divine being guided by reason—if government (and corporations
and landlords) did not interfere, individuals would bring abundance to all. Thomas Malthus believed that man was not
GOVERNMENT REGULATION—
ANSWERS TO THE LEGAL REASONING QUESTIONS
1. Should TV programmers and distributors be held in violation of the Sherman Act for requiring
consumers to buy multichannel packages? Why or why not? No. TV programmers and distributors
should not be held in violation of the Sherman Act for requiring consumers to buy multichannel packages. The
Sherman Act applies to actions that diminish competition. In a review of a recent case, the text notes the
court’s recognition that there is “still” competition among TV programmers and distributors for viewers. Today,
in fact, with the increasing popularity of Internet video providers like Netflix, Hulu, and others, there is more
competition among programming vendors than there has ever been.
UNIT SIX: FOCUS ON ETHICS—GOVERNMENT REGULATION 5
2. Do you think that debt collectors should be able to leave voice messages regarding the debt on a
debtor’s phone? Why or why not? Does the fact that many people today only have cell phones affect
your answer? Explain. According to the text, whether debt collectors should be able to leave voice
messages regarding the debt on a debtor’s phone depends on the jurisdiction and the situation. A review of
two cases in separate jurisdictions involving distinct circumstances and resulting in different outcomes
illustrates this point.
Among the prohibited debt-collection tactics under the Fair Debt Collection Practices Act (FDCPA) that
might apply in this situation, the most likely are (1) contacting a debtor represented by an attorney, (2)
contacting third parties (other than a debtor’s parents, spouse, or financial adviser) about payment of a debt
unless a court authorizes such action, (3) harassing or intimidating a debtor (by using abusive language or
threatening violence, for example) or making false or misleading statements (such as posing as a police
officer), and (4) communicating with a debtor at any time after receiving notice that he or she is refusing to
pay the debt, except to advise of further action to be taken by a collection agency. A debt collector cannot
leave voice messages on a debtor’s phone, whether or not it is a cell phone, in violation of any of these
prohibitions.
3. Should the government wait until there is scientific proof of the harmful effects on humans and
wildlife before attempting to regulate pharmaceuticals in drinking water? Or should the government
enact legislation to address the problem now—before it becomes worse? Discuss fully. No one knows
how long-term exposure to random combinations of drugs will affect humans or wildlife. There is little scientific
evidence about the long-term effects. The federal government does not require drinking water to be tested for
drugs, so we do not know for certain whether a particular source of drinking water is contaminated. Requiring
that water be tested—and that all traces of drugs be filtered from it—would be enormously expensive.
Thus, there are valid points on both sides of the issue posed in the question. Until there is scientific proof
of the harmful effects of the pharmaceuticals in drinking water on humans and wildlife, it seems reasonable to
hold off regulating those substances. It is not difficult to extrapolate from what is known about the effects of
pollutants in water, however, to imagine that there are some effects and that those will only worsen over time.
It might be posited that it would be better to act now to stop further contamination.
A compromise suggests itself in what contributed to the problem. That is, for years, pharmacists,
physicians, and the federal government recommended that people dispose of unused medications by flushing
them away. This prevents children from accidentally ingesting the drugs and keeps controlled substances
from falling into the hands of people who might abuse them. In making and carrying out these
recommendations, of course, no one considered the long-term effects on the environment of adding
pharmaceuticals to the water supply. The same people who once suggested the flushing might now caution
against its use. This would at least stop the problem from getting worse and might at best lead to cleaner
water.
4. Can you think of a better way that the law can address the problem of climate change, which is
clearly not just a national issue? Explain. The effect of the release of substances that contribute to climate
change, like pollution generally, does not respect political borders. Indeed, one of the reasons that the federal
government became involved in environmental protection was that state regulation alone could not solve the
problem of air or water pollution. This underscores the fact that the world is a global community. What one
country does or does not do with respect to the environment may be felt by citizens in countries next door or
oceans away.
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
Any law that would be effectively brought to bear on the issue of climate change would have to be
international. And international law has no simple enforcement mechanism beyond the willingness of its
adherents to comply. There might be legal actions individual nations or economic groups of nations could take
by paying more for, or buying more of, goods and services that are produced through cleaner methods. A
higher return on investment could encourage many to engage in those practices. Law–induced economic
incentives have worked to address other issues.
The text suggests that, the law aside, economic development may produce surer results. After a nation
reaches a certain per capita income level, the more economic growth the nation experiences, the lower the
pollution output. This occurs because richer nations have much to gain from cleaning up their more fouled
environment and the resources to pay for it.
2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
multichannel packages violated antitrust law. The U.S. Court of Appeals for the Ninth Circuit ruled in favor of
the defendants, citing the competition among them for viewers.
II. Credit Reporting Agencies and “Blacklisting”
Some credit reporting agencies report on individuals’ litigation history, which may be of interest to landlords
and medical professionals. Some agencies do not allow consumers to review this information. Consumer
advocates oppose both practices, comparing the former to discriminatory “blacklisting” and labeling the latter
unfair. A consumer might pursue a claim against an agency for dissemination of false information.
III. Privacy Concerns and the Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA) prohibits disclosures about a debt to third parties. Leaving a
voice message regarding a debt collection on an answering machine may constitute such a disclosure,
depending on the circumstances and the jurisdiction. Cases have gone both ways, holding that a voice
message violates the FDCPA because it was, or might be, overheard by a third party and that it does not
violate the FDCPA if it does not identify the debtor or the debt.
IV. Environmental Law
Ethical dilemmas in regard to environmental law include whether the government has gone too far in
regulating businesses in the interest of protecting the environment. Has it gone far enough? At what point are
the costs of regulations too much for society to bear? How much it will cost to clean up all of America’s toxic
waste dumps is not certain, partly because the extent of contamination is unknown and partly because there
is no agreed-on standard as to how clean a site should be. Who should pay?
V. Concerns over Pharmaceuticals in Drinking Water
Trace amounts of drugs have been detected in our water supply. Some comes from unmetabolized drugs that
pass through those who ingest them, but the rest has been literally flushed down the toilet—largely on the
advice of pharmacists, physicians, and the federal government to keep the drugs from being abused.
Environmental effects are not known. Requiring that water be tested and that all traces of drugs be filtered
from it would be enormously expensive.
VI. Global Environmental Issues
What one nation does with respect to environmental issues can affect what happens in other nations.
Countries have made attempts to reduce cross-border pollution, under treaties and other agreements, but this
remains a challenging issue.
A. CLIMATE CHANGE
The Kyoto Protocol set different rates of reduction in greenhouse-effect emissions for different countries
and regions. Most nations, including the United States, will not meet the goals.
B. IS ECONOMIC DEVELOPMENT THE ANSWER?
Economic development may lead to pollution reduction because richer nations have the financial
resources to pay for it.
UNIT SIX: FOCUS ON ETHICS—GOVERNMENT REGULATION 3
TEACHING SUGGESTIONS
1. Domestic manufacturers cannot always compete with foreign companies in terms of price. Sometimes
foreign-made goods are less safe. But domestic designers and importers have also been found to be the
source of safety lapses, which could be ascribed to the products’ specifications. The trade-off for safer
products, of course, is the price.
As an illustration that regulation may not always be in the best interests of those that it is intended to
benefit, point out that, due to the United States’s testing process for new products and drugs (which may be
the most stringent in the world), many products are available in other countries long before they are available
in the United States. This is often underscored by events, most recently in connection with drugs marketed
abroad for the treatment of AIDS and Alzheimer’s disease. Ask students to consider the social costs of this
extended testing. At what point do the costs outweigh the benefits?
2. Create a hypothetical based on an actual administrative regulation, including some of the evidence and
other factors that the agency considered in issuing (or deciding not to issue) a specific regulation. Without
disclosing the actual result, ask students to weigh the factors and come to their own regulatory conclusion.
After they reach their decisions and “issue” their regulations, present the results of “new” studies that could
affect those regulations, including added costs of compliance, increased unexpected benefits, data that
suggests the regulations did not go far enough, or went too far, etc. The point is to underscore the competing
considerations in determining whether and how much to regulate.
3. Explain that from an ethical perspective, government regulation is problematic because it imposes
significant costs on American society (the cost to operate the agency, the cost to comply with its regulations).
The benefits are not as easily quantifiable (for instance, what is the value of a human life?). In any case,
government agencies generally weigh these, and other, factors and make a decision as to the extent of
regulation. Given the choice, many of us might make different decisions.
Cyberlaw Link
As banking and bill-paying, and other credit transactions go online, what protections should be
implemented to safeguard consumers? Whether or not it is illegal to “crack” encryption code, is there
an ethical obligation to keep such “cracks” relatively secret to avoid their use by irresponsible
hacker? Or should defects be publicized to inhibit the use of the code?
ADDITIONAL QUESTIONS
1. What is the conflict many businesses face in acting to protect the environment? Generally, environ-
mental protection involves costs that must be absorbed by shareholders, consumers, or employees, in the form of
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
2. Is government regulation is necessary to reduce environmental destruction? It can be argued that
government regulation in this area is needed, because in our competitive economic system, companies normally
3. Is government regulation entirely beneficial? No, not even for its intended beneficiaries. For example, rent
4. What is the guiding principle of antitrust law? The guiding principle of antitrust law is to promote
competition. How has the Robinson-Patman Act been used to undercut this principle? Small firms have used
businesspersons, and economists have criticized this use of the statute as anticompetitive. How does antitrust law
hinder international competitiveness? For the most part, antitrust law inhibits rivals’ cooperation in developing and
ACTIVITY AND RESEARCH ASSIGNMENT
If businesses were freed of government regulation and conducted their affairs restrained only by ethi–
cal assumptions, would consumers, employees, and competitors be treated fairly and the environment be
protected? This question could be posed to the class as a whole, discussed in small groups, or assigned as a re–
search topic. Adam Smith believed that man was a divine being guided by reason—if government (and corporations
and landlords) did not interfere, individuals would bring abundance to all. Thomas Malthus believed that man was not
GOVERNMENT REGULATION—
ANSWERS TO THE LEGAL REASONING QUESTIONS
1. Should TV programmers and distributors be held in violation of the Sherman Act for requiring
consumers to buy multichannel packages? Why or why not? No. TV programmers and distributors
should not be held in violation of the Sherman Act for requiring consumers to buy multichannel packages. The
Sherman Act applies to actions that diminish competition. In a review of a recent case, the text notes the
court’s recognition that there is “still” competition among TV programmers and distributors for viewers. Today,
in fact, with the increasing popularity of Internet video providers like Netflix, Hulu, and others, there is more
competition among programming vendors than there has ever been.
UNIT SIX: FOCUS ON ETHICS—GOVERNMENT REGULATION 5
2. Do you think that debt collectors should be able to leave voice messages regarding the debt on a
debtor’s phone? Why or why not? Does the fact that many people today only have cell phones affect
your answer? Explain. According to the text, whether debt collectors should be able to leave voice
messages regarding the debt on a debtor’s phone depends on the jurisdiction and the situation. A review of
two cases in separate jurisdictions involving distinct circumstances and resulting in different outcomes
illustrates this point.
Among the prohibited debt-collection tactics under the Fair Debt Collection Practices Act (FDCPA) that
might apply in this situation, the most likely are (1) contacting a debtor represented by an attorney, (2)
contacting third parties (other than a debtor’s parents, spouse, or financial adviser) about payment of a debt
unless a court authorizes such action, (3) harassing or intimidating a debtor (by using abusive language or
threatening violence, for example) or making false or misleading statements (such as posing as a police
officer), and (4) communicating with a debtor at any time after receiving notice that he or she is refusing to
pay the debt, except to advise of further action to be taken by a collection agency. A debt collector cannot
leave voice messages on a debtor’s phone, whether or not it is a cell phone, in violation of any of these
prohibitions.
3. Should the government wait until there is scientific proof of the harmful effects on humans and
wildlife before attempting to regulate pharmaceuticals in drinking water? Or should the government
enact legislation to address the problem now—before it becomes worse? Discuss fully. No one knows
how long-term exposure to random combinations of drugs will affect humans or wildlife. There is little scientific
evidence about the long-term effects. The federal government does not require drinking water to be tested for
drugs, so we do not know for certain whether a particular source of drinking water is contaminated. Requiring
that water be tested—and that all traces of drugs be filtered from it—would be enormously expensive.
Thus, there are valid points on both sides of the issue posed in the question. Until there is scientific proof
of the harmful effects of the pharmaceuticals in drinking water on humans and wildlife, it seems reasonable to
hold off regulating those substances. It is not difficult to extrapolate from what is known about the effects of
pollutants in water, however, to imagine that there are some effects and that those will only worsen over time.
It might be posited that it would be better to act now to stop further contamination.
A compromise suggests itself in what contributed to the problem. That is, for years, pharmacists,
physicians, and the federal government recommended that people dispose of unused medications by flushing
them away. This prevents children from accidentally ingesting the drugs and keeps controlled substances
from falling into the hands of people who might abuse them. In making and carrying out these
recommendations, of course, no one considered the long-term effects on the environment of adding
pharmaceuticals to the water supply. The same people who once suggested the flushing might now caution
against its use. This would at least stop the problem from getting worse and might at best lead to cleaner
water.
4. Can you think of a better way that the law can address the problem of climate change, which is
clearly not just a national issue? Explain. The effect of the release of substances that contribute to climate
change, like pollution generally, does not respect political borders. Indeed, one of the reasons that the federal
government became involved in environmental protection was that state regulation alone could not solve the
problem of air or water pollution. This underscores the fact that the world is a global community. What one
country does or does not do with respect to the environment may be felt by citizens in countries next door or
oceans away.
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
Any law that would be effectively brought to bear on the issue of climate change would have to be
international. And international law has no simple enforcement mechanism beyond the willingness of its
adherents to comply. There might be legal actions individual nations or economic groups of nations could take
by paying more for, or buying more of, goods and services that are produced through cleaner methods. A
higher return on investment could encourage many to engage in those practices. Law–induced economic
incentives have worked to address other issues.
The text suggests that, the law aside, economic development may produce surer results. After a nation
reaches a certain per capita income level, the more economic growth the nation experiences, the lower the
pollution output. This occurs because richer nations have much to gain from cleaning up their more fouled
environment and the resources to pay for it.