Alternative Governance Structures for Natural Monopoly

Abstract

The previous chapters have primarily pursued a neoclassical framework for evaluating alternative approaches to regulating natural monopoly. For neoclassical economics, scale economies provide the basic justification for monopoly, with regulation a sometimes necessary evil to control monopoly’s inherent allocative inefficiency. Neoclassical economics, however, says little about the variety of regulatory solutions devised for the natural monopoly problem. The new institutional economics, on the other hand, is concerned with questions such as the choice of one regulatory mode over another and the comparative efficiency of various hierarchical forms of organisation).¹ By utilising a comparative institutional assessment, the new institutional economics has a means, at least qualitatively, of evaluating the variety of regulatory solutions that exist. In this chapter we illustrate such a comparative institutional assessment for several alternative governance structures for natural monopolies.