This paper examines the problem of a regulated utility that sells output according to a nonlinear price schedule. Three results are obtained. First, rate-of-return regulation lowers the price schedule charged by the firm along its entire length. Second, some units of output will always be sold at a marginal price below true marginal cost. Third, a move from linear to nonlinear prices at a given fair rate-of-return can lead to an unambiguous increase in welfare

Reviews the book "The Regulation of Public Utilities: Theory and Practice," by Charles F. Phillips

The paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier (1) has superior information about the cost of the project and (2) invests in cost reduction. The main result states that, under risk neutrality, the supplier announces an expected cost and is given an incentive contract linear in cost overruns. This (optimal) contract moves toward a fixed-price contract as the announced cost decreases. An investment choice is then introduced and the use of a rate-of-return regulation is studied

The paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier (1) has superior information about the cost of the project and (2) invests in cost reduction. The main result states that, under risk neutrality, the supplier announces an expected cost and is given an incentive contract linear in cost overruns. This (optimal) contract moves toward a fixed-price contract as the announced cost decreases. An investment choice is then introduced and the use of a rate-of-return regulation is studied

Regulatory practices by the Federal Communications Commission (FCC) have the effect of rationing the use of a particular resource required for communications satellite technology, the electromagnetic spectrum. Spectrum, or the airwaves, is the medium over which communications signals such as TV, telephone, and radar travel. Federal government allocation of spectrum among competing services has long been implemented to mitigate the interference that can arise between nearby signals-hence, for instance, the assignment of radio stations to unique regions along the AM and FM dials. That government regulation can and probably does fail to allocate spectrum efficiently, for all the usual economic reasons, has been attested to, criticized, and in turn the subject of proposed reformation in an economics literature both historic (radio spectrum regulation inspired Coase's theorem) and growing (including work which dates from Harvey Levin, 1971, and references cited therein, to, most recently, Stanley Besen et al., 1984). Left unaddressed, however, have been the implications of inefficient spectrum regulation for the pace and direction of technical change. Specifically, the problems of static resource misallocation may be compounded by inefficiency in induced innovation (V. Kerry Smith, 1974, 1975; Koji Okuguchi, 1975; Wesley Magat, 1976). If FCC allocations incorrectly signal the true economic scarcity of spectrum, innovation to augment spectrum and other inputs on the basis of relative scarcity may be misdirected, and the overall rate of R&D spending may be distorted accordingly. The effect of government regulation on innovation in communications satellite technology merits particular attention for several reasons. First, a recent FCC ruling will increase the cost of future satellites by requiring them to operate at FCC-mandated minimum levels of intensity of spectrum use, on top of rationed quantities of spectrum (see Federal Register, 1983, para. 69). Second, unlike other uses of spectrum, there is a large public sector component to satellite R &D spending that is also likely to be affected by FCC regulation. Undertaken by NASA, current research expenditures on advanced communications satellite technology have been justified in large part by a perceived need to develop methods that use spectrum more intensively (see NASA, 1984, and U.S. Congress, House, 1984). Third, and again distinguishing satellites from other users of spectrum, the inherently global nature of satellite technology renders satellite spectrum allocations a contentious international issue. In particular, developing countries not currently using satellite technology have expressed serious concern about future spectrum availability. In response, technical change economizing on spectrum is frequently endorsed by regulators, and moral suasion is accordingly brought to bear on industry, as an appropriate solution (see FCC, 1985, and U.S. Congress, 1982).1 This paper proceeds as follows. Section I tailors a model of induced innovation de

The word revolution is entirely appropriate for describing the changes in financial institutions and instruments that have occurred in the past twenty years. The major impulses to successful financial innovations have come from regulations and taxes. The outlook for the future is for a slowing down of the rate of financial innovation, but much growth and improvement are still in prospect

Cost Accounting Standards Board, Cost accounting, Defense Contracting, Operating cashflows