Accounting

The theory suggests that regulations are set of policies driven by forces of supply and demand. The government is placed on the supply side while the interest groups on the demand side. The theory suggests that regulation is developed by the industry and that the objective of regulations is to create advantages to the industry concerned. This theory was developed in 1971 by Chicago theory of government and the economic theory of regulation (J. G. Stigler, The Theory of economic regulation, n.d. pg 4).

Characteristics of economic interest theory
The theory suggests that it is the industry which designs the regulations to be adopted in the market. The industry sets the regulations for the benefit of its members (J. Hertog, General Theories of Regulation, 1999, pg236). It also operates these regulations and there are no external mechanisms involved. The government allows the stakeholders in the industry to participate in decision making concerning economic matters that affect the sectors of the economy. The theory suggests that the representative groups in the government decision making should be small in size so as to reduce the running costs. The theory suggests that producers can organize themselves more readily than consumers. It suggests that producers can easily regulate their activities faster compared to the consumers. The theory suggests the phenomena of cross-subsidization. This is where regulations which have been put across benefit some groups more than others (L. Loevinger, Antitrust, Banking and Competition. 1985, pg 584).

Advantages of economic interest theory
The industry concerned is allowed to make its own rules and regulations. The role of the government is to enforce the regulations that have been designed by the industry. The government uses the regulations to achieve its national economic goals. For example, the government can grant subsidies to an industry so as to increase prices (A. Etzioni, The Capture Theory of Regulations, 2009, pg 321).
The theory allows political decision making concerning the industry to be done by the industry instead of an individual. This helps reduce time, energy and money. The industry should be involved in the governmental decision making on economic matters that affect the industry (A. Etzioni, The Capture Theory of Regulations, pg 321).

 The theory is able to predict the benefits to be achieved from the regulations. The benefits can be direct through subsidies or indirectly through prices, quotas, or restrictions to market entry.

Disadvantages of economic interest theory
The idea of using representative groups to regulate the industry and the economic activities in a country may favor some groups more than the others. For example, the policy to have uniform prices for basic items created more advantage to some groups than to others. The production costs may be different in different geographical areas. This may create greater profits to some industries than others (M. J. R. Gaffikin, Regulation as an Accounting Theory, 2009, para15).

The politicians are not predictable since they put regulations for their own advantage. They may support the private sector for their own interests. Politicians can suppress some groups in the decision making process and this would discourage proper decisions about the regulatory measures to adopt. Politicians also seek political support from these groups and may favor the decisions of the groups in the decision making process 

The theory advocates for the use of representative groups in the establishment of regulations. The industries involved send their own representative groups in the decision making process to make policies which regulate the activities in the entire economy. Politicians may take advantage of the decision making process and make policies which favor them.