This paper reexamines a much-studied topic, the effects of surface freight regulation. It demonstrates that several studies use invalid methods to estimate the welfare costs of rate regulation, develops a correct procedure, and provides estimates of the welfare effects using data and modal market share relationships estimated by Boyer. The paper also analyzes some implications of the common assumption that the demand for total freight shipments by all modes is perfectly inelastic.

In the late 1960's, the Federal Communications Commission (FCC) introduced competition into telecommunications. Initially limited to specific services and types of customer equipment, the limits soon gave way. By 1980, the FCC's policy was to promote competition. In 1982, the Antitrust Division settled its suit against AT&T with close to total victory, achieving divestiture of the Bell Operating Companies (BOC). AT&T remains in equipment and interexchange services, which are growing increasingly competitive. To facilitate divestiture, the FCC adopted several policies: asserting jurisdiction regarding depreciation and then adopting methods that more nearly reflect economic costs, eliminating regulation of equipment prices, and restructuring the procedures whereby interstate services share local exchange costs. Two aspects of these new policies are worth emphasizing. First, astonishingly enough, economics played a central role in changing federal telecommunications policy, as acknowledged by Philip Verveer (1984), the lawyer who developed the antitrust case against AT&T, the Chief of the FCC's Cable Television Bureau when cable was deregulated, and the Chief of the Common Carrier Bureau when the FCC formally adopted the policy of minimizing federal regulation of telecommunications. The intellectual foundation of these policies is an economic case that the industry will be more efficient if it is minimally regulated and maximally competitive. Second, the new federal policy is widely despised by state regulators. My title is from an eloquent decision in Texas, which also characterized cost-causative pricing as from the Antoinette School of Rate Design (Mary Ross McDonald and Angela Marie Demerle, 1984, p. 35). State regulators dislike federal procompetitive policy because it transferred several billion dollars of revenue responsibility to the states and threatens state regulatory policies. Thus far, the state response has hardly been accommodative. Instead, federal and state regulators are fighting a three-front Jurisdiction War. This paper briefly analyzes the economics and politics of state resistance to federal policies. For more details, see my companion paper (1985).

The Environmental Protection Agency is introducing bubbles, offsets, and banks as a way of controlling pollution with market incentives to obtain standards for each source and guide the reallocation of emissions. The new method is not a true market because polluters must go through the permitting procedure in order to trade emission allowances. This study examines whether an efficient market without source-by-source review is feasible. It considers the importance of enough participants, competitiveness, sensitivity to geographic emission patterns, and trading flexibility to sustain marketable permits. The design features that address these problems are permit life, market definition, market initiation, and market operation. A stable permit market eliminates some of the uncertainties in decision making because it allows firms to select a preferred level of risk. 9 references. (DCK)