• Contents

    • Winning By Losing: The AT&T Settlement and Its Impact on Telecommunications

      MacAvoy, Paul; Robinson, Kenneth (1983-01-01)
      On January 8, 1982, Assistant Attorney General William F. Baxter and Charles L. Brown, chairman of the American Telephone and Telegraph Company (AT&T or Bell), jointly announced settlement of the government's 1974 antitrust suit against AT&T and its affiliates. The settlement, as approved by Judge Harold Greene, required AT&T to divest its local Bell operating companies and satisfied virtually all of the demands for structural relief made at trial by the Department of Justice (DOJ or Department). The Department has thus achieved its litigation objectives without a judicial decision on the merits of its case.
    • Judicial Review of Economic Analyses

      Wald, Patricia (1983-01-01)
      Most federal appellate judges are generalists, not intensively schooled in economic theory and mindful of the limits to their institutional competence. Judicial review of economic analyses is an increasingly important task of the courts, however, particularly courts like the United States Court of Appeals for the District of Columbia Circuit that hear appeals from the rules and rulings of regulatory agencies. Agencies use economic analyses for administrative decision-making in a variety of ways. They may be required by statute to make decisions that are "economically feasible" or to consider "reasonableness of cost." Even when the governing statute says nothing specific about economic principles, the agency may rely heavily on economic analysis to meet more general statutory criteria, such as determining that rates are "just and reasonable." In such cases, the agency often uses economic theory to predict the consequences of a particular action and to determine whether that action is in accord with the statutory mandate. In still other cases, the agency may use economic analysis simply to find jurisdictional facts.
    • Barriers to Implementing Tradable Air Pollution Permits: Problems of Regulatory Interactions

      Hahn, Robert; Noll, Roger (1983-01-01)
      Since 1977, the Environmental Protection Agency (EPA) has been developing and implementing an increasingly comprehensive system of "controlled trading options" for air pollution control. These programs introduce a limited market for the allocation of emissions among sources of air pollution. Starting with existing source-specific standards as a baseline, policies such as bubbles, emissions banks, netting and offsets allow firms to negotiate - within limits - trades of emissions permits in a manner that satisfies air quality standards at lower total costs. These trades, once agreed upon by the parties, in most cases must then be proposed to regulators as amendments to the existing set of source-specific standards.
    • Regulation and Federalism

      Gray, C. (1983-01-01)
      Over the past few decades, there has been uncritical acceptance in many quarters of the notion that the federal government is the best level of government at which to establish regulatory programs. Congress, the entire federal apparatus, and even the states seemed to agree that when someone said "there ought to be a law," that meant a federal law. With the federal law came federal regulations, federal enforcement, federal judicial review, and, of course, federal bureaucracy.
    • Structuring an Effective Occupational Disease Policy: Victim Compensation and Risk Regulation

      Viscusi, W. (1984-01-01)
      Controlling occupational disease is now at the forefront of the debate over occupational health and safety. Although workplace injuries have received attention from labor, government, and insurance officials for many years, the general public has only recently become aware of the magnitude of the occupational disease problem. The surge in asbestos-related diseases has fostered greater public awareness and concern about the issue, as has the recent Johns-Manville bankruptcy.
    • Reindustrialization through Coordination or Chaos?

      Eizenstat, Stuart (1984-01-01)
      Jose Ortega y Gasset once said that "to define is to exclude and deny." The authors of the preceding article (hereinafter referred to collectively as Miller) attempt to discredit American-style industrial policy by mischaracterizing it. Miller does this through a series of historical and contemporary examples which in reality are easily criticized attempts at centralized planning and which bear little relation to the industrial policy strategies proposed for the 1980's. These inapt examples lead Miller to dismiss industrial policy on the ground that it would lead to politicized, collectivist action against the public good. They also compel him to favor reliance on the market, which Miller asserts "is the best coordinator of business, labor, and consumer decisions-especially in a complex industrial economy." Perhaps the most serious defect in Miller's discussion, however, is its failure to address three important realities that must be considered when evaluating the desirability of implementing an industrial policy: (1) government's inevitable involvement in microeconomic policy-making, (2) the nature of international economic competition, and (3) the difficulties that attend the present transition of the American economy from a manufacturing to a service and information economy.
    • Industrial Policy: Reindustrialization Through Competition or Coordinated Action?

      Miller, James; Walton, Thomas; Kovacic, William; Rabkin, Jeremy (1984-01-01)
      The American economy is just now recovering from its most difficult period since the Great Depression. In the eight years following the 1973 oil embargo by the Organization of Petroleum Exporting Countries (OPEC), the average annual rate of growth in industrial production fell by nearly sixty percent, while the rate of growth in labor productivity fell by approximately seventy percent relative to the average rates of the preceding twenty five years. By 1980 the annual rate of inflation, as measured by the Consumer Price Index, had reached 13.5 percent, the highest rate since 1947 and more than twice the rate in 1970; and by 1982 the rate of unemployment had reached 9.7 percent, the highest rate since 1941 and nearly double the rate in 1970. In the six years following the OPEC embargo the nation's view of its economic future changed from one of seemingly boundless optimism to one of great concern. The new mood was perhaps best captured by President Carter in his famous 1979 speech on "malaise" in America.
    • Electing Regulators: The Case of Public Utility Commissioners

      Costello, Kenneth (1984-01-01)
      Governments presumably institute regulatory systems to serve the interests of the public. Sometimes, however, the interests of individual regulators may diverge from those of the public. For example, because regulated industries typically are better organized than the consumers of their products or services, a regulator may maximize his political support by serving the interests of the regulated industry instead of consumer interests. Pluralist commentators on this regulatory dilemma have suggested that subjecting regulators to greater public accountability would reduce the incentives for such behavior. They recommend that, since specialized political interests have less influence over the elective process than over appointments, regulators should be elected rather than appointed.
    • Deregulating International Markets: The Examples of Aviation and Ocean Shipping

      Gomez-Ibanez, Jose; Morgan, Ivor (1984-01-01)
      During the past ten years, the United States has loosened economic regulation and increased competition in many domestic industries, including banking, telecommunications, airlines, railroads, trucking, and intercity busing. Although early signs suggest that domestic deregulation will be a success, U.S. firms still face substantial barriers to competition in many international markets. In ocean shipping and international aviation, for example, the U.S. government has signed treaties that limit service between the United States and foreign countries and that divide markets between the national carriers of each country. In both industries, the U.S. government also tolerates cartels that attempt to set prices and control capacity.
    • The Economics of Deposit Insurance: A Critical Evaluation of Proposed Reforms

      Goodman, Laurie; Shaffer, Sherrill (1984-01-01)
      In The Role of Deposit Insurance in the Emerging Financial Services Industry, Chairman William M. Isaac of the Federal Deposit Insurance Corporation (FDIC) suggests that major reform of the federal depository insurance system is necessary to assure sound banking practices in a period of widespread deregulation of financial markets. Isaac identifies three recent changes in the financial services industry which have created a need to re-evaluate the role of deposit insurance: expansion of the product lines which banks are allowed to offer, partial removal of constraints on interstate banking, and gradual elimination of interest rate ceilings on bank deposits. We agree with Isaac that these changes present a serious challenge to the present system of financial services regulation; we disagree, however, with his proposed reforms.
    • Contents

    • Contents

    • Deregulation and the Theory of Contestable Markets

      Bailey, Elizabeth; Baumol, William (1984-01-01)
      Until recently, the need to regulate monopoly was considered virtually axiomatic, and the imposition of rules governing entry, exit and pricing was deemed a priority. The deregulation movement has raised pragmatic questions about these orthodoxies, and, more recently, a new body of economic analysis called the theory of contestable markets has provided a conceptual basis for the view that many markets that are subject to economies of scale should not be regulated by the conventional methods.
    • The Road to More Intelligent Telephone Pricing

      Kahn, Alfred (1984-01-01)
      The transformation of interexchange telecommunications from a regulated, franchised monopoly to an unregulated, competitive industry has been under way for a quarter century. AT&T now faces competition in almost all of its intercity markets, including residential toll calling, and the local operating companies face the prospect of partial displacement by a number of emerging alternatives to the wired exchange network.
    • Beyond the Politics of Federalism: An Alternative Model

      Foote, Susan (1984-01-01)
      In Regulation and Federalism, C. Boyden Gray describes a theoretical framework for distributing regulatory authority in a federalist state. In this comment, I provide an alternative model that goes beyond Gray's framework to establish specific criteria for allocating regulatory power between the states and the federal government.
    • The Role of Deposit Insurance in the Emerging Financial Services Industry

      Isaac, William (1984-01-01)
      Revolutionary changes are now taking place in the financial system. A structure put into place a half century ago, at the bottom of the Great Depression, is crumbling, and a new structure is rapidly taking shape. In part, these changes are deliberate but, in larger part, they result from the forces of economics and technology. The central question facing the federal government today is not whether change will or should continue but, rather, how to assure that the resulting financial structure will be one that best serves the public interest.
    • Cajolery or Command: Are Education Campaigns an Adequate Substitute for Regulation?

      Adler, Robert; Pittle, R. (1984-01-01)
      Between the mid-sixties and the mid-seventies, the so-called "consumer decade," Congress enacted a large number of consumer protection laws, many in the area of health and safety. In recent years, some of these laws and the regulations promulgated under them have inspired harsh criticism. Some critics, including many Reagan Administration appointees, have argued that rather than regulate, government should inform and educate the public about the risks associated with various hazards and let individuals choose whether or not to take the risks.
    • Price Theory and Telecommunications Regulation: A Dissenting View

      Copeland, Basil; Severn, Alan (1985-01-01)
      In recent years, analysts have increasingly invoked neoclassical price theory to justify radical changes in the regulation of the American telecommunications market, namely the trend toward competition and away from traditional regulatory and rate-setting practices. Many economists assert that competition and marginal-cost pricing will eliminate cross-subsidization and promote efficient markets for local and long-distance telephone services and telecommunications equipment. Price theory, however, does not necessarily support structural reform of the telecommunications industry. Indeed, pre-divestiture pricing policy can be defended on the same grounds its critics employ to advocate structural changes. This article assesses the applicability of static price theory to market conditions currently confronting local operating companies. It challenges the widely held belief that structural reform in telecommunications is necessary to achieve economic efficiency, particularly in intraLATA markets. It recommends that regulators view with skepticism arguments derived from price theory that purport to justify significant departures from historic pricing practices and that advocate wholesale competitive entry into intraLATA markets.