Reviews the book "Accounting: How to Meet the Challenges of Relevance and Regulation," by Eugene H. Flegm

It is sometimes necessary or appropriate to correct an externality by intervening in the market for a privately traded commodity with which the externality is linked. In these situations ad valorem taxation is a viable policy option. It is argued that some combination of specific and ad valorem taxes will always outperform regulations which fix price administratively, but that quantity standards may outperform taxes. The analysis is applied to a problem in international trade

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

Environmental regulations set maximum allowable rates for sulfur dioxide emissions from electric utilities. By ignoring firm differences in marginal abatement costs and preventing emissions trading, these standards do not minimize the cost of reducing einissions. This paper estimates marginal abatement cost functions for 56 utilities for 1973-79. Marginal costs vary substantially across firms due to differences in the price of low and high sulfur fuels and the intensity of regulation. The potential savings from a cost minimizing reallocation of abatement resources are estimated for five regions. Current expenditures are found to be 47% higher than cost minimizing levels. I MPLEMENTATION of the 1970 Clean Air Act Amendments relies extensively on technology-based emission standards. Economists long have recognized that these standards can result in an inefficient allocation of pollution control resources.' Engineering-based restrictions ignore or oversimplify differences in abatement costs among polluters. Limited empirical research suggests that current standards result in substantially higher costs, as much as ten times higher, than a cost-minimizing regulatory scheme.2 These studies, however, are based on engineering estimates of marginal abatement costs. The models often assume that all polluters adopt control technologies that are required only for new plants and that have been largely unadopted by polluting firms.3 The impact of changing factor prices on marginal abatement costs typically is ignored. The difficulty is that the resulting estimates of the cost of regulation neither adequately reflect the range of control options available to polluters nor take into account how polluters actually have responded to environmen

Methodology, Exact distributions of test statistics

In this paper, we attempt to blend economic theory with an understanding of the historical context and regulation of Japanese financial markets, particularly during the 1950s and 1960s. The historical and regulatory context is critical since it represents the framework within which the economic forces operated. That is, we are interested in examining how a particular structure, characterized by controlled interest rates, segmentation of markets and functions, and limited entry, gave rise in understandable ways to distinctive corporate financial practices