The Foundations of Regulatory Volume I The Origins and Development of Regulatory Economics

Edited by Robert B. Ekelund, Jr. Lowder Eminent Scholar, Auburn University, USA

THE INTERNATIONAL LIBRARY OF CRITICAL WRITINGS IN ECONOMICS

An Elgar Reference Collection Cheltenham, UK • Northampton, MA, USA

digitalisiert durch: The foundations of regulatory economics IDS Luzern 1998 Contents

Acknowledgements IX Introduction Robert B. Ekelund, Jr. xi

PARTI THE BEGINNINGS 1. Jules Dupuit (1962), 'On Tolls and Transport Charges', translated by Elizabeth Henderson from Annates des Ponts et Chaussees, 2e sir. (1849), 17 in International Economic Papers, No. 11, London: Macmillan & Co Ltd., 7-31 3 2. Charles Ellet, Jr. (1840), 'The of Trade Applied to the Determination of the Most Advantageous Fare for Passengers on Railroads', Journal of the Franklin Institute, XXVI (6), December, 369-79 28 3. Donald L. Hooks (1971), ' Price Discrimination in 1850: Dionysius Lardner', History of , 3, Spring, 208-23 38 4. Robert B. Ekelund, Jr. and Robert F. Hebert (1973), 'Public Economics at the Ecole des Ponts et Chaussees: 1830-1850', Journal of Public Economics, 2, 241-56 54 5. Edwin Chadwick (1859), 'Results of Different Principles of Legislation and Administration in Europe; of Competition for the Field, as compared with Competition within the Field, of Service', Journal of the Statistical Society, XXII, 381-420 70 6. Arthur T. Hadley (1890), 'The Prohibition of Railroad Pools', Quarterly Journal of Economics, IV, 158-71 110

PART II EARLY THEORIES OF RAILWAY : COST VERSUS MONOPOLY 7. Frank W. Taussig (1891), 'A Contribution to the Theory of Railway Rates', Quarterly Journal of Economics, V, July, 438-65 127 8. Frank W. Taussig and A.C. Pigou (1913), 'Articles and Controversies between Pigou and Taussig', Quarterly Journal of Economics, XXVII, February, May, August, 378-84, 535-38, 687-94 155 9. Frank W. Taussig (1933), 'The Theory of Railway Rates Once More', Quarterly Journal of Economics, XLVII, February, 337-42 174 10. D. Philip Locklin (1933), 'The Literature on Railway Rate Theory', Quarterly Journal of Economics, XLVII, February, 167-230 180 The Foundations of Regulatory Economics I

PART III THE EARLY THEORY OF PRICE DISCRIMINATION AND REGULATION 11. F. Y. Edgeworth (1912), 'Contributions to the Theory of Railway Rates - IIP, Economic Journal, XXII, June, 198-218 247 12. E.W. Clemens (1941), 'Price Discrimination in Decreasing Cost Industries', American Economic Review, XXXI, December, 794-802 268 13. David D. Friedman (1979), 'In Defense of the Long-Haul/Short- Haul Discrimination', Bell Journal of Economics, 10 (2), Autumn, 706-8 277 14. Robert B. Ekelund, Jr. and Yeung-Nan Shieh (1989), 'Full Price Competition and Dupuit's Defense of the Long-and-Short-Haul "Discrimination"', Journal of Regulatory Economics, 1 (4), December, 359-71 280

PART IV THE DEVELOPMENT OF MARGINAL COST PRICING: THE SEARCH FOR EFFICIENCY RATIONALES 15. Harold Hotelling (1938), 'The General Welfare in Relation to Problems of Taxation and of Railway and Utility Rates', Econometrica, 6, July, 242-69 295 16. Ragnar Frisch (1939), 'The Dupuit Taxation Theorem' and 'A Further Note On The Dupuit Taxation Theorem', Econometrica, 7, April, 145-50 and 156-7 323 17. Harold Hotelling (1939), 'The Relation of Prices to Marginal Costs in an Optimum System' and 'A Final Note', Econometrica, 7, April, 151-5 and 158-60 331 18. William Vickrey (1948), 'Some Objections to Marginal-Cost Pricing', Journal of Political Economy, LVI, June, 218-38 339 19. R.H. Coase (1946), 'The Marginal Cost Controversy', Economica, N.S., XIII (49-52), August, 169-82 360 20. Nancy D. Ruggles (1950), 'Recent Developments in the Theory of Marginal Cost Pricing', Review of Economic Studies, XVII, 107-26 374

PART V JOINT COST AND PEAK LOAD PRICING 21. Raymond T. Bye (1930), 'Composite Demand and Joint Supply in Relation to Public Utility Rates', Quarterly Journal of Economics, XLIV, November, 40-62 397 22. Peter O. Steiner (1957), 'Peak Loads and Efficient Pricing', Quarterly Journal of Economics, LXXI, November, 585-610 420 23. Jack Hirshleifer (1958), 'Peak Loads and Efficient Pricing: Comment', Quarterly Journal of Economics, LXXII, August, 451-62 446 24. M. Boiteux (1960), 'Peak-Load Pricing', Journal of Business, XXXIII, April, 157-79 458 The Foundations of Regulatory Economics I

25. Oliver E. Williamson (1966), 'Peak-Load Pricing and Optimal Capacity under Indivisibility Constraints', American Economic Review, LVI (4), September, 810-27 481 26. Ralph Turvey (1968), 'Peak-Load Pricing', Journal of Political Economy, 76, January/February, 101-13 499 27. Michael A. Crew, Chitru S. Fernando and Paul R. Kleindorfer (1995), 'The Theory of Peak-Load Pricing: A Survey', Journal of Regulatory Economics, 8 (3), November, 215-48 512

Name Index 547 The Foundations of Regulatory Economics Volume LT Modern Approaches to Regulatory Economics

Edited by Robert B. Ekelund, Jr. Lowder Eminent Scholar, Auburn University, USA

THE INTERNATIONAL LIBRARY OF CRITICAL WRITINGS IN ECONOMICS

An Elgar Reference Collection Cheltenham, UK • Northampton, MA, USA Contents

Acknowledgements vii An Introduction by the editor to all three volumes appears in Volume I

PART I CRACKS IN THE MIRROR: PUBLIC INTEREST AND EFFICIENCY QUESTIONED 1. Harvey Averch and Leland L. Johnson (1962), 'Behavior of the Firm Under Regulatory Constraint', American Economic Review, LII, December, 1052-69 3 2. Thomas Gale Moore (1970), 'The Effectiveness of Regulation of Electric Utility Prices', Southern Economic Journal, XXXVI (4), April, 365-75 21 3. Paul W. MacAvoy (1970), 'The Effectiveness of the Federal Power Commission', Bell Journal of Economics and Management Science, 1(2), Autumn, 271-303 32 4. W. Mark Crain and Asghar Zardkoohi (1978), 'A Test of the Property-Rights Theory of the Firm: Water Utilities in the United States', Journal of and Economics, XXI (2), October, 395^08 65

PART II THE NEW THEORY OF REGULATION: PUBLIC INTEREST VERSUS INTEREST GROUPS 5. George J. Stigler (1971), 'The Theory of Economic Regulation', Bell Journal of Economics and Management Science, 2, Spring, 3-21 81 6. Richard A. Posner (1975), 'The Social Costs of Monopoly and Regulation', Journal of Political Economy, 83 (4), August, 807-27 100 7. Sam Peltzman (1976), 'Toward a More General Theory of Regulation' and Gary Becker (1976) 'Comment', Journal of Law and Economics, XIX (2), August, 211 ^0 and 245-8 121 8. Fred S. McChesney (1987), 'Rent Extraction and Rent Creation in the Economic Theory of Regulation', Journal of Legal Studies, XVI (1), January, 101-18 155 9. Gary S. Becker (1983), 'A Theory of Competition among Pressure Groups for Political Influence', Quarterly Journal of Economics, XCVIII (3), August, 371^100 173 10. Jerome EUig (1991), 'Endogenous Change and the Economic Theory of Regulation', Journal of Regulatory Economics, 3 (3), September, 265-74 203 The Foundations of Regulatory Economics II

11. T. Randolph Beard and Henry Thompson (1996), 'Efficient versus "Popular" Tariffs for Regulated ', Journal of Business, 69 (1), January, 75-87 213

PART III CONTRACTS AND FRANCHISE BIDDING 12. Harold Demsetz (1968), 'Why Regulate Utilities?', Journal of Law and Economics, XI, April, 55-65 229 13. William Mark Crain and Robert B. Ekelund, Jr. (1976), 'Chadwick and Demsetz on Competition and Regulation', Journal of Law and Economics, XIX (1), April, 149-62 240 14. Oliver E. Williamson (1976), 'Franchise Bidding for Natural Monopolies - in General and with Respect to CATV', Bell Journal of Economics, 7 (1), Spring, 73-104 254 15. Victor P. Goldberg (1976), 'Regulation and Administered Contracts', Bell Journal of Economics, 7 (2), Autumn, 426-48 286 16. Robert B. Ekelund, Jr. and Richard P. Saba (1980), 'Human Capital and Incumbent Advantages in the Contract Managed Firm', Southern Economic Journal, 47 (1), July, 100-109 309 17. Robert B. Ekelund, Jr. and Richard S. Higgins (1982), 'Capital Fixity, Innovations, and Long-Term Contracting: An Intertemporal Economic Theory of Regulation', American Economic Review, LXXII (1), March, 32-46 319

PART IV , AND REGULATORY RESPONSES 18. Steven N.S. Cheung (1973), 'The Fable of the Bees: An Economic Investigation', Journal of Law and Economics, XVI (1), April, 11-33 337 19. Reuben A. Kessel (1974), 'Transfused Blood, Serum Hepatitis, and the Coase Theorem', Journal of Law and Economics, XVII (2), October, 265-89 360 20. Ronald N. Johnson and Gary D. Libecap (1982), 'Contracting Problems and Regulation: The Case of the Fishery', American Economic Review, LXXII (5), December, 1005-22 385 21. Gary D. Libecap and Steven N. Wiggins (1984), 'Contractual Responses to the Common Pool: Prorationing of Crude Oil Production', American Economic Review, 74 (1), March, 87-98 403 22. Frederick W Bell (1986), 'Mitigating the Tragedy of the Commons', Southern Economic Journal, 52 (3), January, 653-64 415 23. S.J. Liebowitz and Stephen E. Margolis (1990), 'The Fable of the Keys', Journal of Law and Economics, XXXIII (1), April, 1-25 427

Name Index 453 The Foundations of Regulatory Economics Volume HT Regulation and : Industries and Issues

Edited by Robert B. Ekelund, Jr. Lowder Eminent Scholar, Auburn University, USA

THE INTERNATIONAL LIBRARY OF CRITICAL WRITINGS IN ECONOMICS

An Elgar Reference Collection Cheltenham, UK • Northampton, MA, USA Contents

Acknowledgements ix An Introduction by the editor to all three volumes appears in Volume I

PART I CONTEMPORARY ISSUES IN REGULATORY ECONOMICS 1. Lee Benham (1972), "The Effect of Advertising on the Price of Eyeglasses', Journal of Law and Economics, XV (2), October, 337-52 3 2. David L. Kaserman and John W. Mayo (1991), 'Regulation, Advertising, and Economic Welfare', Journal of Business, 64 (2), April, 255-67 19 3. Barry R. Weingast and Mark J. Moran (1983), 'Bureaucratic Discretion or Congressional Control? Regulatory Policymaking by the Federal Trade Commission', Journal of Political Economy, 91 (5), 765-800 32 4. Terry M. Moe (1987), 'An Assessment of the Positive Theory of "Congressional Dominance'", Legislative Studies Quarterly, XII (4), November, 475-520 68 5. Michael T. Maloney, Robert E. McCormick and Robert D. Tollison (1984), 'Economic Regulation, Competitive , and Specialized Resources', Journal of Law and Economics, XXVII (2), October, 329-38 114 6. John R. Lott, Jr. and Stephen G. Bronars (1993), 'Time Series Evidence on Shirking in the U.S. House of Representatives', , 76,125-49 124 7. Ann P. Bartel and Lacy Glenn Thomas (1987), 'Predation through Regulation: The Wage and Effects of the Occupational Safety and Health Administration and the Environmental Protection Agency', Journal of Law and Economics, XXX (2), October, 239-64 149 8. Don Boudreaux and Robert B. Ekelund, Jr. (1987), 'Regulation as an Exogenous Response to Market Failure: A Neo-Schumpeterian Response', Journal of Institutional and Theoretical Economics, 143 (4), December, 537-54 175

PART II REGULATION AND DEREGULATION: CONTEMPORARY THEORY, INDUSTRIES AND ISSUES 9. Robert D. Tollison (1991), 'Regulation and Interest Groups', in Jack High (ed.), Regulation: Economic Theory and History, Chapter 2, Ann Arbor: The University of Michigan Press, 59-76 195 The Foundations of Regulatory Economics III

10. Sam Peltzman (1989), 'The Economic Theory of Regulation after a Decade of Deregulation', Brookings Papers on Economic Activity: Microeconomics, 1-41 213 11. P.V. Garrod and W. Miklius (1987), '"Captive Shippers" and the Success of Railroads in Capturing Monopoly Rent', Journal of Law and Economics, XXX (2), October, 423-42 254 12. James M. MacDonald (1989), 'Railroad Deregulation, Innovation, and Competition: Effects of the Staggers Act on Grain Transportation', Journal of Law and Economics, XXXII (1), April, 63-95 274 13. Andrew N. Kleit and Stewart G. Maynes (1992), 'Airline Networks as Joint Goods: Implications for Competition Policy', Journal of Regulatory Economics, 4 (2), June, 175-86 307 14. David L. Kaserman, John W. Mayo and Patricia L. Pacey (1993), 'The Political Economy of Deregulation: The Case of Intrastate Long Distance', Journal of Regulatory Economics, 5 (1), March, 49-63 319 15. M.E. Beesley and S.C. Littlechild (1989), 'The Regulation of Privatized Monopolies in the United Kingdom', Rand Journal of Economics, 20 (3), Autumn, 454-72 334 16. Pablo T. Spiller and Luis Viana Martorell (1996), 'How Should It Be Done? Electricity Regulation in Argentina, Brazil, Uruguay, and Chile', in Richard J. Gilbert and Edward P. Kahn (eds), International Comparisons of Electricity Regulation, Chapter 3, New York: Cambridge University Press, 82-125 353

PART III EMPIRICAL STUDIES OF REGULATORY EFFECTS 17. Raymond Urban and Richard Mancke (1972), 'Federal Regulation of Whiskey Labelling: From the Repeal of Prohibition to the Present', Journal of Law and Economics, XV (2), October, 411-26 399 18. John E. Kwoka, Jr. (1977), 'Pricing Under Federal Milk Market Regulation', Economic Inquiry, XV, July, 367-84 415 19. Richard A. Ippolito (1979), 'The Effects of Price Regulation in the Automobile Insurance Industry', Journal of Law and Economics, XXII (1), April, 55-89 433 20. Deborah Haas-Wilson (1986), 'The Effect of Commercial Practice Restrictions: The Case of Optometry', Journal of Law and Economics, XXIX (1), April, 165-86 468 21. Andy H. Barnett, T. Randolph Beard and David L. Kaserman (1993), 'Inefficient Pricing Can Kill: The Case of Dialysis Industry Regulation', Southern Economic Journal, 60 (2), October, 393-^104 490 The Foundations of Regulatory Economics III

PART IV HISTORICAL STUDIES OF REGULATION 22. Robert B. Ekelund, Jr. and George S. Ford (1997), 'Nineteenth Century Urban Market Failure?: Chadwick on Funeral Industry Regulation', Journal of Regulatory Economics, 12 (1), July, 27-51 505 23. Robert M. Spann and Edward W. Erickson (1970), 'The Economics of Railroading: The Beginning of Cartelization and Regulation', Bell Journal of Economics and Management Science, 1 (2), Autumn, 227^14 530 24. Richard O. Zerbe, Jr. (1980), 'The Costs and Benefits of Early Regulation of the Railroads', Bell Journal of Economics, 11(1), Spring, 343-50 548 25. Fred S. McChesney (1986), ' Prohibitions on Volunteer Fire Fighting in Nineteenth-Century America: A Property Rights Perspective', Journal of Legal Studies, XV (1), January, 69-92 556 26. Audrey B. Davidson, Elynor D. Davis and Robert B. Ekelund, Jr. (1995), 'Political Choice and the Child Labor Statute of 1938: Public Interest or Interest Group Legislation?', Public Choice, 82, January, 85-106 580

Name Index 603