Positive models of public-utility regulation should capture personal incentives of regulators. A regulatory objective function is specified by appea l to standard human concerns coupled with politics and processes pecu liar to public-utility regulation. Constraints a rational regulator w ould impose on the firm are thereby derived, and connections between regulatory objectives and regulatory rules illuminated. Results inclu de theoretical rationales for "rate-of-return" regulation in a worl d of certainty, and a largely neglected type of "rate-of-return" re gulation under (symmetric) uncertainty. Other forms of regulation sho uld also be explicable in terms of personal motives of human regulato rs.
The output of the considerable effort expended on economic education in the schools of the United States is, of course, the resulting contribution to the students' degree of understanding of the workings of our economy and their pertinent reasoning ability. A comprehensive survey questioning both teachers and students, whose first phase has now been completed, permits a more extensive description of what has been achieved, of the means that have been used in the process and of the resources available for the purpose. Perhaps even more important, it makes possible an empirical analysis of the relationship between the inputs and the outputs-the methods and resources used and the achievements of the students. This article describes some of the main results obtained from a first analysis of these data. Among the major results to date that emerge from this study are the following conclusions: 1) Students who receive formal training in economics at the senior level in high school, consisting of a minimum of three hours per week, understand some economic topics quite well but have major gaps in their understanding of others. 2) Students share with their teachers many of the same goals for studying economics, but students believe that these goals are less important than teachers believe them to be. 3) Most economics students have not had any experience in studying economics prior to the senior level course. 4) Economics students believe that economics helps them to think more systematically about some kinds of issues they face, but not others. 5) Student attitudes toward their economics courses vary considerably, with 23 percent describing themselves as liking economics a lot, 42 percent as liking it a little, 16 percent as unsure, 7 percent as disliking it a little, and 6 percent as disliking it a lot. 6) Senior students receiving formal training in economics constitute a fairly representative group in terms of Scholastic Aptitude Test scores but not in terms of the educational achievements of their parents. 7) Teachers giving instruction in economics at the high school level vary widely in the amount of their college training in economics and in their experience in teaching it. 8) The gender and ethnic backgrounds of economics teachers differ from those of economics students. 9) The topics in economics most frequently included by economics teachers in their courses were supply and demand, how market and prices work, and monetary and fiscal policy. Topics most neglected include balance of payments, how to interpret economic data, and measurement concepts. 10) The teachers felt that the instructional materials most helpful to them were newspapers, textbooks, and graphs and charts. *Professor of Economics, Princeton University, Princeton, NJ 08544 and New York University; and Director of Research, Joint Council on Economic Education, 432 Park Avenue South, New York, NY 10016, respectively. We are extremely grateful to the J. Howard Pew Freedom Trust, Inc. whose generous grant to the Joint Council on Economic Education and Princeton University made possible the research underlying this paper and the creation of the data base on economic education. The basic ideas for this work originated in the Joint Council, which provided supervision throughout the project. The data collection was carried out promptly and competently by Audrey McDonald. Invaluable suggestions and comments were provided by an advisory committee composed of Wil11am Becker, Indiana University; Marilyn Kourilsky, UCLA; Charles Plott, California Institute of Technology; and Sherwin Rosen, University of Chicago.
Models of economic activity with frictions in coordinating trading have been shown to be capable of generating multiple steady states. (Peter Diamond, 1982, is the pioneering work; see my 1987a paper for a general discussion.) Less work has been done on out-of-steady-state dynamics in such models, which would enable us to examine what sort of fluctuations these models may generate. The absence of dynamics leaves open the question of which steady state the economy will reach, as well as whether the comovements of key variables resemble what is observed over the cycle. In my earlier paper (1987b), I presented a model combining search and aggregate demand approaches to unemployment to show how spillovers between product and labor markets could yield multiple equilibria. Here, a highly simplified dynamic model based on this work is presented, in which (self-fulfilling) sales expectations determine to which steady state the economy converges. These expectations are summarized by the asset values of firms which are producing output relative to those that are not. Two types of dynamic paths leading to stationary solutions can arise. The first is a saddle path. In addition, for certain parameter values, stable limit cycles emerge. Interestingly, over this cycle, asset values of firms (which one could interpret as stock market values) lead economic activity. I. Model Setup
Undoubtedly, the greatest surprise in telephone industry deregulation has been the absence of deregulation, for the industry continues to be almost as highly regulated today as twenty years ago. Entry has been greatly liberalized in the equipment and most services markets, AT&T has been broken up, but the most important intrastate and interstate telephone services continue to be subject to formal rate regulation. Competitive entry has made this regulation more difficult, not politically less compelling. The major event in the telephone industry has not been deregulation, but divestiture. In 1984, AT&T was divested of its operating companies as the result of an historic 1982 antitrust decree. In this paper, I summarize some of the early effects of divestiture, including: (i) the virulence of the politics to keep the uneconomic subsidies that invited competitive entry in the first place, (ii) the preliminary evidence that AT&T is losing by winning and not vice versa, (iii) the new competition in equipment markets that may turn out to be more important than the recent developments in services competition, (iv) the misplaced concerns about the loss of system efficiency and service quality due to divestiture, and (v) the plight of the divested regional Bell holding companies (RBOCs).
Many theories of individual choice under risk and uncertainty are formu lated in terms of preferences over prospects, i.e., probability distr ibutions of consequences. By contrast, regret theory is formulated in terms of actions, i.e., n-tuples of state-contingent consequences. W hat appear from the viewpoint of prospect-based theories to be innocu ous rephrasings of choice problems are predicted by regret theory to cause people to reverse their choices. This paper follows up earlier results with a new kind of experimental test. The new evidence favors regret theory.
Recent attempts to resolve the international debt crisis have lead some countries to engage in debt-equity swaps. The paper explores conditions under which such transactions are beneficial to the debtor as well as the creditors. It identifies a market failure that may prevent the emergence of actually beneficial swaps and analyzes the effects of swaps on the investment level in the debtor country. The latter helps to evaluate the contribution of this policy to future difficulties with debt service payments.