Some Theoretical Considerations of Regulation

Abstract

The purpose of this chapter is to provide an analytical framework for public utility regulation. Section 9.1 constructs a model of regulation from a simple examination of inputs to the regulatory process. In Section 9.2 we set out the Averch-Johnson effect for the deterministic case of a single product. Section 9.3 discusses the effects of regulation with stochastic peak loads. It shows the added potential provided with stochastic demands for Averch-Johnson effects or even gold plating. Section 9.4 explores some of the effects of behavioural assumptions other than profit maximisation on the part of the firm’s management. Section 9.5 provides a brief discussion of dynamic effects and some remarks on the earlier results.