In many countries throughout the world, regulators are struggling to determine whether and how to introduce competition into regulated industries. This essay examines the complexities involved in the liberalization process. While stressing the importance of case-specific analyses, this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies
The last thirty years have witnessed a fundamental change in the regulation of infrastructure industries. Whereas firms were subject to rate of return regulation and protected from entry in the past, they now face various forms of incentive regulation, competition is actively promoted by many regulators, and both regulators and the firms they regulate must often confront rapid technological progress. This paper surveys the literature on the investment implications of different regulatory schemes, highlighting the relevance of modern investment theory, which puts risk and intertemporal issues, such as the irreversibility of much infrastructure investment, center stage. It discusses the impact on regulated monopolists' investment behavior of key regulatory characteristics, namely the price flexibility allowed by the regulator, the length of the regulatory cycle, and the costs the regulator will allow the firm to recover at future regulatory hearings. It also considers the impact of competition, especially the situation where a vertically integrated firm has its operation of a bottleneck asset regulated, on investment by regulated firms and their competitors
Five papers explore the effects of regulation, the causes and consequences of its dramatic growth in the United States, and the prospects for deregulation. Specific topics include the impact of public utilities and transportation regulation on prices, output, investment, health and safety regulation, and environmental regulation; the indirect effects of regulation on competition (e.g., on the cost of new capacity and competitive positions of firms); the causes and consequences of major shifts in business-government relationships; conceptual and practical problems in measuring the costs of regulation; and an analysis of the legislative deregulation of the airline industry, with projections for deregulation in the railroad and trucking industries
The experiences of the financial crises in the United States recently and in Japan in the 1990s suggest two lessons for future financial regulations. First, the lack of an orderly resolution mechanism for large and complex financial institutions created serious problems. Second, it is important to distinguish between individual financial institutions' health and stability of the whole financial system. Policy recommendations in the Squam Lake Report address these issues well. The Dodd–Frank Act could provide an effective regulatory framework to implement these recommendations, but the success depends on the details of the regulations that have not been specified
Study of Competition and Regulation for the permission to use a previous study (Vogelsang 2000) on which this survey is based. My deep thanks for helpful comments go to Lewis Evans, Larry Kotlikoff, John McMillan, Bridger Mitchell, Glenn Woroch and two insightful referees
This survey assesses evidence on the linkage between environmental regulation and competitiveness, and finds little support for the conventional wisdom that environmental regulations have large adverse effects on competitiveness. Studies examining the effects of environmental regulations on net exports, overall trade flows, and plant-location decisions have produced estimates that are small, statistically insignificant, or not robust. We also find no systematic evidence supporting the revisionist hypothesis that environmental regulations stimulate innovation and improved competitiveness. Overall, the evidence suggests that the truth regarding the relationship between environmental protection and international competitiveness lies in between the extremes of the current debate
MILTON FRIEDMAN AND ANNA SCHWARTZ Monetary Trends reports a great many findings-53 are enumerated in the introduction-but paramount is the stability of the demand for money in the US and Britain over the past century. The money stock controls money income. This proposition more than anything else is the point of their painstaking investigation. Friedman and Schwartz argue against what might neutrally be called the early post-war view of the macroeconomic role of money: Velocity will move easily to reconcile any level of nominal income to any money stock. The demand for money in this view is a will-o'the-wisp, as the authors put it. Monetary policy has little influence over real activity; stabilization policy necessarily relies on fiscal instruments. The volume is completely convincing in disposing of this idea; today's reader is likely to be puzzled why so much space is devoted to a view that has no serious adherents among professional economists. Friedman and Schwartz are generals fighting an earlier war, a situation accentuated by the long lags in putting this volume into print. Though the opposing armies fighting for the early postwar view have withdrawn in total rout, a new front has opened up, and the quantity theory is fighting for its life once again. Worse yet, the new armies are fighting under the banner of free-market economics and are led by former colleagues and students of Milton Friedman. The midwest, once the stronghold of the quantity theory, is now largely occupied by the enemy. The new monetary economics views the quantity theory as nothing more than an artifact of government regulation. An economy organized along free-market principles could function without money at all (Fischer Black, 1970). It is true that the kinds of monetary regulations imposed by the American and British governments of the past century create a more-or-less stable relation between a certain class of assets called money and nominal spending (Eugene Fama, 1980), but different regulations would alter that relation. Even the real bills doctrine, anathema to quantity theorists because it invites unlimited expansion of the money supply, has advocates in the new school (Thomas Sargent and Neil Wallace, 1981). monetary system where the government is unconcerned about the money stock has been advocated by a University of Chicago economist while visiting the Hoover Institution (John Bilson, 1981). Restoring the intrinsic value of money, not limiting its quantity, has been found to be the key to successful disinflation by one member of this group (Sargent, 1982). critical summary, titled A Laissez Faire Approach to Monetary Stability, written * See p. 1528, above, for publication information
The book begins with a quote from J.H. Dales’ Pollution, Property, and Prices, "If it is feasible to establish a market to implement a policy, no policy-maker can afford to do without one." This book provides important evidence in support of Dales’ statement. The book is a thorough examination of the first several years of the U.S. Acid Rain Program. This innovative program uses a cap-and-trade approach, rather than the traditional command-and-control approach, to reduce sulfur dioxide (SO2) emissions. The book offers substantial evidence of the program’s success. The analysis is of both practical and scientific importance. From a practical viewpoint, the acid rain program is an ambitious effort to reduce a major pollutant. It is important for us to understand whether the program is successful and how it might be improved. From a scientific viewpoint, the authors’ analysis provides a framework and methodology for evaluating similar programs. There is much we can learn about effective regulation from the analysis
The efficient operation and expansion of infrastructures in developing countries is crucial for growth and poverty reduction. However, recent reforms aimed at improving the performance of these sectors have had limited success. Evidence suggests that, in many instances, this was because the traditional regulatory theory relied on by policymakers was not suitable for the institutional context in developing countries. This article surveys more recent theoretical work focusing on problems with regulation in these countries. At the heart of the survey is the work of Jean-Jacques Laffont, who, in the last decade of his life, set about developing a theoretical framework for regulation in developing countries. We consider the implications of his work, which focused on the key institutional limitations faced in developing countries. We then discuss where experience suggests that there are important omissions from this modeling, bringing in extensions and alternative approaches pursued by other authors. We conclude by summarizing the key ways in which regulatory policy will be different when institutions are weak. Overall, we find that an understanding of the institutional context and its implications are crucial when designing a regulatory framework for developing countries