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Inhaltsverzeichnis

Frontmatter

Introduction and Statement of Purpose

Abstract
The limitation of natural monopoly revenues through cost based rate of return (or, as used here, “profit level”) regulation is widely viewed as a source of productive and allocative inefficiency. Assuming for the moment a sound basis for such views, the need remains for some manner of public intervention to constrain the potential abuse of private economic power in natural monopoly markets. Among the alternatives under consideration is price level regulation. Its essence lies in the unlinking of the firm’s allowed revenues from its actual internal costs.
Jordan Jay Hillman, Ronald R. Braeutigam

1. The Inefficacy of Profit Level Regulation for the Natural Monopoly Markets of Diversified Firms

Abstract
The first question in any assessment of current or alternative forms of regulation is: “Why regulate at all?” From an economic perspective9 the classic basis for regulation has been described as follows: “The most traditional economic case for regulation assumes the existence of natural monopoly-that is-where economies of scale are so persistent that a single firm can serve the market at a lower unit cost than two or more firms.”10
Jordan Jay Hillman, Ronald R. Braeutigam

2. The Welfare Ingredients of Price Level Regulation: Incentives and Decisional Options

Abstract
A shift from profit to price level regulation effects a shift of risks and benefits between the firm and its consumers. In purest theory profit level regulation assigns to consumers the risks of cost increases and the benefits of cost reductions, while price level regulation reassigns both to the firm. In turn, the transfer of these risks and benefits effects a major change in the firm’s incentives.
Jordan Jay Hillman, Ronald R. Braeutigam

3. Assessing the Efficacy of Price Level Regulation for the Natural Monopoly Markets of Diversified Firms

Abstract
In seeking to replicate the results of competition through limiting the firm’s revenues to its costs, profit level regulation has only succeeded in reducing consumer welfare by increasing production costs. Efforts to tinker with costs by disallowing this or that category or increment simply pits the regulator against the firm in an unending and costly game. The most effective regulatory regime is a poor proxy for the firm’s own efficiency incentives.
Jordan Jay Hillman, Ronald R. Braeutigam

4. Implementing a Price Level Regime for Diversified Public Utilities

Abstract
The decisional elements and processes in determining prices under profit and price level regulation differ significantly. Under profit level regulation the (indirect) price decision is largely a product of regulatory discretion in reducing a welter of competing variables and interests into a politically acceptable decision that projects a sufficient aura of rationality. To these ends the opportunities for obscured tradeoffs are legion. If the desired result requires a rate of return that seems too high or too low, then the same result can be reached by use of a different rate of return with compensating adjustments in operating costs or the rate base. If the rate base is the sensitive issue, then a more satisfying or less vulnerable result can be achieved through adjustments in the rate of return. Similarly, the impact of economically improvident decisions on the allowance or disallowance of controversial operating costs can be eased through adjustments in the rate base or rate of return. Where the result proves unpalatable the parties can return to the regulatory drawing board.
Jordan Jay Hillman, Ronald R. Braeutigam

Conclusion

Abstract
The initiation of price level regulation for the natural monopoly markets of diversified public utilities would have three main aims. Each could prove attainable under a properly structured regime that effectively unlinks the firm’s internal costs from its revenue allowance.
Jordan Jay Hillman, Ronald R. Braeutigam

Backmatter

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