Contents

Introduction

1. The Object and Approach of This Book
Limitations
A Theory of Regulation
Typical Justihcations for Regulation
The Control of Monopoly Power
The Traditional Economic Rationale for Regulation. Objections (o the Traditional Economic Rationale. Additional Bases for Regulation.
Rent Control or "Excess Profits"
What Is a Rent? The Rationale for Regulation. Compensating for Spillovers (Externalities)
What Are Spillovers? The Classical Rationale for Regulation.
Objections to the Classical Rationale. A Caveat. Inadequate Information
The Classical Rationale for Regulation. Criticisrns of the Rationale.
Excessive Competition: The Empy Box
Historical Use. Current Use.
Other Justifications
The Mixture of Rationales

2 Cost-of-Service Ratemaking
The System
The Problems
Determrning the Rate Base. Determining the Rate of Return.
Efficiency. The Test Year." Rate Structure.
Conclusion

3 Historically Based Price Regulation
The System
The Problems
Categorization. Cost-of-Service Ratemaking. Allocaiion. Enforcement. New Investment.
Conclusion

4 Aliocation under a Publlc Interest Standard
The System
Problems
What Is to Be Allocated? The Selection Process. The Renewal Process.
Conclusion

5 Standard Setting
The System
The Procedural Background. The Standard-Selting Process.
Problems Inherent in the Process
Information. Enforcement. Anticompetitive Effects. Judicial Review.
Conclusion

6 Historically Based Allocatlon
The System
The Need for Exceptions
The Exception Process
Conclusion

7 Individualized Screening
The Food Additive Screening System
Problems with This Form of Regulation
Developing a Test for Risk. The Use of Experis. The Effort to be Comprehensive: Calculating and Weighing Benefits. Varying Standards of Selection.
Conclusion

8 Alternatives to Classical Regulation
Unregulated Markets Policed by Antitrust
Disclosure
Taxes
The Creation of Marketable Property Rights
Changes in Liability Rules
Bargaining
Nationalization

9 General Guidelines for Policy Makers
II Appropriate Solutions

10 Match and Mismatch

11 Mismatch: Excessive Competition and Airline Regulation

The Industry
Regulation
Harmful Effects of Regulation
Mismatch as Cause
Price Reguiation. Route Awards. Efficiency. The Effort to
Regulate Schedules.
An Alternative to Classical Regulation
Conclusion

12 Mismatch: Excessive Competition and the Trucking lndustry
The Industry and Regulation
The Effects of Regulation
Alternatives to Classical Regulation
Conclusion

13 Mismatch: Rent Control and Natural Gas Field Prices
The Indusiry
Regulation
Adverse Effects
The Mismatch and the Shortage
Firm-by-Firm Cost-of-Service Ratemaking. Areawide Cost-of-
Service Ratemaking.
The Mismatch and Natural Gas Aliocation
Standard Setting. Pubiic Interesi Aliocation. Negotiation.
Alternatives
Conclusion
14 Partial Mismatch: Spillovers and Environmental Poilution
The Problems of Standard Setting
Incentive-Based Systems: Taxes and Marketable Rights
In Principie. A More Practicai Comparison.
Conclusion

15 Problems of a Possible Match: Natural Monopoly and Telecom-
munications
The Characienstics of the Longline Problem
The Industry and the Service. Regulation and Joint Costs. The
Entry of Competition into Long-Distance Telecommunications.
The FCC's Response to the Problem
Above MCI. Specialized Common Carriers (SCCs). AT&T's Competitive Response: Special Rates. Docket 18128. Expanding the Area of Conipetition.
The Basic Choices
Conclusion
III Practical Reform

16 From Candidate to Reform
The Elements of Implementation
The Kennedy Hearings
Preparation. The Actual Hearings. Conclusion

17 Generic Approaches to Regulatory Reform
Better Personnel
Procedural Changes
Fairness and Efficiency.Legit,macy.
Structural Change
Managerial Proposais. Superv isory Proposais. New Institutions.
Encouraging Substantive Reform
Impaci Statements. Encouragi ng Step-by- Step Reform.

Appendix 1 The Regulatory Agencies
Appendix 2 A Note on Administrative Law
Further Reading
Notes
Index