The purpose of this collaborative research is to analyze, from a theoretical perspective, a number of aspects of recent regulatory reform in the U.S. The project will focus on three broad areas: (1) The management of competition in regulated industries; (2) The optimal design of regulatory policy; and (3) The implementation of price-cap regulation. In the first part, the investigators will explore, from a theoretical perspective, how to combine in an optimum way competition and regulation in regulated industries such a electric power, telecommunications, and transportation. In the second part, research will be directed at analyzing the implications of regulatory commissions holding regulated industries, such as public utilities, fully responsible for decisions having unfavorable outcomes, while at the same time allowing only meager rewards for favorable outcomes. The third part of the project will analyze the implications of price-cap regulation which many state regulatory commissions have adopted to control intrastate phone rates. This project is important because it will provide a more fundamental understanding of the impact of alternative regulation regimes on the performance of regulated industries.
