Regulation is likely to change both the level and direction of innovative activity in this country, but our knowledge both of regulation and of the innovation process is too primitive for us to tell precisely what these changes will be. Rather than make major changes in the regulatory process on the grounds that they will aid innovation, we are better advised to confine our attention to improving the general climate for innovation and altering those aspects of regulation that even casual investigation may suggest be deleterious. That, is the direction suggested by most recent important studies; their degree of caution is appropriate. 5 references.

N this study we formulate and estimate a cost function for the United States local service airline industry. Section I discusses certain characteristics of the industry and its regulation by the Civil Aeronautics Board (CAB) which influence the form of the cost function and the method of estimation chosen. The model is outlined in section II. The data available and the method of estimation are discussed in section III. Some tentative conclusions are presented in section IV.