One of the principal quantitative techniques used in the studv of costs and benefits of regulation involves the evaluation of consumer's and producer's surplus. Examples are [2], [3], [4], [6]. The method can be caricatured as follows: Obtain data on quantity and price for the output produced by the regulated industry. Obtain estimates of the slopes of the demand and marginal cost from cross-section or timeseries estimates of elasticities. Calculate where demand and marginal cost would intersect. Complete a triangle whose vertexes are (1) the predicted intersection of marginal cost and demand, (2) the current demand price, and (3) the current estimated marginal cost. Add to the area of this dollar triangle the direct total cost of the entire regulatory machinery-the budget of the regulatory agency and the budget for lawyers, accountants, engineers, public relations men, and for all the other costs incurred by those being regulatedand you have an estimate of the social cost of regulation. Waiving their validity and accuracy for the moment, the calculations assume that a feasible social alternative to the regulated status quo is, in fact, described by the intersection of the measured marginal cost and demand curves, and that this alternative situation can be reached without new direct regulation costs offsetting the savings. If the social optimum were to require a price-output configuration for the regulated industry described by the pricemarginal cost equality, and this equality could be brought into being by a costless restructuring of the regtulated industry into one behaving like a competitive industry, then the social choice is trivial. The complex statistical calculations are unnecessary. However, if pure competition or its simulation are not viable alternatives to the regulated status quo because of decreasing unit costs often considered characteristic of public utilities, then the calculations are beside the point. Dismantling the regulatory machinery will save the resources used by the regulatory process, but the laissez-faire outcome will probably be oligopoly with its absence of price competition, excessive product differentiation, wasteful sales promotion and advertising, excess capacity, and expensive legal talent to forestall and defend antitrust prosecutions. The measured demand and marginal cost curves and the triangle provide no information about a new deregulated equilibrium. And it is not a valid proposition that entry of firms, threats of entry, and oligopolistic rivalry will be an improvement over regulated monopoly. So far I have not challenged the proposition that the intersection of demand and * Research support of the National Science Foundation is gratefully acknowledged

Reviews the book "Economic Policy and the Regulation of Corporate Securities," edited by Henry G. Manne

We have discussed some of the effects of rate regulation in the property and casualty insurance industry. One consequence of the regulatory environment is that an optimal capital structure may clearly exist in this industry. If the rate of return to the insureds is generally deficient, we would expect that property and casualty stock companies would have an incentive to lever themselves to the maximum extent permissible by selling insurance. The classic monopoly of the economic literature finances its lucrative investment opportunities in a competitive capital market. The stock insurance company invests in that market, but the relative distribution of the return earned there may be less than equitable due to the process and standards of rate regulation

The papers in this collection represent the first systematic and comprehensive effort to bring the techniques of economics to bear on a broad spectrum of securities regulation problems

Lucille S. Mayne, Session Topic: Trends in Banking Structure and Regulation: Discussion, The Journal of Finance, Vol. 26, No. 2, Papers and Proceedings of the Twenty-Ninth Annual Meeting of the American Finance Association Detroit, Michigan December 28-30, 1970 (May, 1971), pp. 647-649

Charles Schotta, Session Topic: Trends in Banking Structure and Regulation: Discussion, The Journal of Finance, Vol. 26, No. 2, Papers and Proceedings of the Twenty-Ninth Annual Meeting of the American Finance Association Detroit, Michigan December 28-30, 1970 (May, 1971), pp. 650-651

Certified public accounting is a profession whose members are independent practitioners or members of firms rendering services in three broad areas: auditing, taxes, and management services.' In order to perform effectively selected tasks, professions rely on a certain amount of autonomy given by society. Along with the privilege of autonomy goes the responsibility of self-regulation. Any profession which fails to regulate effectively the professional behavior of its members risks the loss of its autonomy.2 As a profession, certified public accounting has the task of regulating the professional behavior of its members. The objective of this paper is to report findings on the ethical behavior of Certified Public Accountants

Government agencies commonly employ the rate of criterion in the regulation of monopolies: after the firm subtracts its operating expenses from gross revenues, the remaining revenue should be just sufficient to compensate the firm for its investment in plant and equipment, at a rate which is considered to be fair. It has been argued by Harvey Averch and Leland Johnson, and now rigorously proved by Akira Takayama, that such constraint induces the firm, subject to regulatory control, to increase it-, investment and output and also to deviate from the optimal allocation of inputs, because the regulated firm does not equate marginal rates of factor substitution to the ratio of factor costs. Therefore, cost is not minimized at the output selected by the firm.' Since the fair rate of return criterion leads to a nonoptimal state in the sense of Pareto, a basic question is whether it improves the performance of the economy, from a welfare point of view, as compared with the unregulated monopoly situation (where output is too small). This is a second best problem in which we have to choose between two situations, each deviating in one way or another from optimality. Here we show that from the point of view of efficiency, disregarding income distribution aspects, some regulation via the fair rate of return is always advantageous. We also derive the rule for the optimal degree of regulation, i.e. the regulation that maximizes social welfare