A STUDY OF INDIRECT COSTS IMPOSED BY REQUIREMENTS FOR SUPPLEMENTAL INFORMATION DISCLOSURE

Scope and Method of Study. The general goal of this study was to provide a step toward a theory for the determination of the indirect costs of complying with regulations imposed by policy making bodies. An economic model for measuring deadweight welfare loss due to monopoly power to set price was used to observe the increase in the loss which may have been imposed on consumers because of the Securities Exchange Commission's requirement for disclosure of replacement cost information with historical cost based financial statements.; This study was not a general treatment of economic theory or of the measurement of deadweight welfare loss due to monopoly power to set price, but was instead an application of those tools to assess the significance of an imposed indirect cost to society. The various aspects of economic theory were pursued only as far as necessary for the lmited purpose of this study.; Findings and Conclusions. The findings of the study suggest that if price elasticities of demand are estimated with the Lerner index method, changes in the observed deadweight welfare loss may be observed. Further, these changes are likely to occur in firms which are not in highly concentrated seller markets. Another conclusion drawn is that the economic theory may be valuable in the search for a theory for measuring indirect costs.; An important implication for future research studies is that this study has suggested an application of only one economic theory to the problem of observing and quantifying indirect costs. Other theories may be valuable in assessing the significance of indirect costs of requirements made by policy making bodies and/or quantifying such indirect costs.