Administrative agencies are established by the legislator to perform specific tasks assigned to them by law. What they actually do is to enforce a specific law. They are usually charged with the day-to-day details of governing. The agencies carry out their tasks by making decisions of various sorts and supervising the procedures by which the decisions are carried out.

The function of administrative agencies is closely related to the reasons for their creation. A certain administrative agency comes into existence when the legislator creates an agency for either of those reasons. The agency, by making use of its expertise and giving close attention to detail and technical matters, takes the necessary administrative action, which may be legislative or judicial in order to enforce the law. Accordingly, the following may be summarized as purposes of the administrative agencies.

A) Regulation

One of the key reasons for regulating economic activities by the government is the inability of business to regulate itself. When the government decides to regulate a certain sector, it entrusts the task to the  administrative agencies. Agencies offer several advantages over regulation through the legislature and courts in the management of complex and technical regulatory problems. Because they are specialized bodies, they can consider technical details more effectively than the legislature.

When the government regulates business its aim is to minimize the negative impacts of a free economy. In the absence of regulation, business does not respond to concerns over the environment and consumers. Some of the justifications for regulation include:

To control monopoly power

Agencies are often created to replace competition with regulation. In this case the agency may determine rate (e.g. transportation, or electricity). Sometimes the difference in bargaining power may be a ground for regulation, avoiding monopoly power of one party. Such instances include regulation of banking, insurance and labour relations.

To control excess profit

The agency regulates business to ensure that business is not collecting excess profit, which may endanger the laws of free market and also may pose a danger to consumers.

To compensate for externalities

“Externalities” occasionally referred to as “spillovers”, that occur when the cost of producing something does not reflect the true cost to society for producing the goods. One example is manufacturing process that creates air pollution for which society pays the clean up costs. A business organization, unless otherwise it becomes sure that there is also corresponding participation by other companies, will not install costly pollution control equipment. Doing so will drive up that company’s costs which makes it unable to compete with other companies in producing the same product without equipment and selling their products at a lower price. So, some entity i.e. a government agency must require all companies to make those investments (installing equipments) in order to spread the costs of pollution control over the entire industry.

To compensate for inadequate information

Compensating for inadequate information is a justification for a great deal of legislation for consumer protection. Purchasers of food, for instance, cannot analyze the nutritional content or the health hazards of various food products so that there has to be some organ that ensures these tests are fulfilled.

To compensate for unequal bargaining of powers

Contracts between banks & customers, insurers & the insured, employees & employers are adhesive in their nature. Either the consumer has to take it or leave it. Hence, it becomes self-evident to regulate and set minimum standards to minimize the effect of unequal bargaining of power.

B) Government exactions

In addition to regulation, administrative agencies may also engage in government exactions. Government exactions are the traditional powers and responsibilities of agencies. Such functions include collection of tax and military conscription.

C) Disbursement of money or other commodities

This purpose of administrative agencies is also the prominent one which characterizes the welfare state. In this regard, through the social security programme and other government systems of insurance or compensation, agencies disburse public money as payment of pensions for veterans or assistance for the aged, the disabled, the unemployed and generally the needy. The payments may be directly through cash or food rations.

D) Provision of goods and services

Nowadays, the government is in charge of building and maintaining roads, high ways and dams, the provision of police force and other protective services.  Funding public education and the health service may also be mentioned as additional examples. More recent additions include mass transit communications, satellite systems, government research and development programmes, public hospitals and public housing.