Feasibility of Deregulation: A Public Choice Analysis

Abstract

Deregulation is evident not just in the United States economy but also in much of Western Europe, notably the United Kingdom where there is an effective move toward privatization. ¹ Following the abolition of the Civil Aeronautics Board on January 1,1985, the deregulation of the airline industry in the United States is frequently cited as the most important example of successful deregulation. The divestiture by AT&T of its operating companies and the deregulation of several telecommunications services is perhaps the most significant example of the trend toward deregulation in the area of public utilities or natural monopoly. Similar developments are observed in the electricity and gas industries. Even water utilities with, arguably, the strongest case for being classed as a natural monopoly, are diversifying into other businesses.² The holding company structure, with its obvious potential for allowing diversification, is becoming increasingly popular. One important difference between these industries and the airlines is that, while the trend is firmly toward deregulation and diversification, regulatory commissions still exist and still exercise regulatory oversight over these industries. Another important difference is that they still have some of the characteristics of natural monopolies, perhaps even of a sustainable nature. Contrast the above with, for example, taxicab services, which are bereft of natural monopoly characteristics and yet show little or no sign of deregulation.³