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Regulated public utility monopolies are not 'natural'

By Darren Nelson - posted Friday, 27 April 2018


#6 Weighted average cost of capital as interest and return (not)

#7 Incentives are profits and losses (not formulas and benchmarks)

#8 Information is created and decentralised (not given and centralised)

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#9 Regulation hasn't worked (in practice)

#10 Regulation can't work (in theory)

As a former mainstream or "lamestream" economist myself, these ten Catch-22s can be put in the context of the orthodox framework of Industrial Organisation Economics as follows (which is a subset of Neoclassical Economics and by-and-large the basis for Regulatory Economics):

#1 #2 #3 are market structure related;

#4 #5 are market conduct related;

#6 #7 #8 are market performance related; and

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#9 #10 are market intervention related.

Structure and conduct are supposed to help address why, where and when there should be regulation. Conduct and performance are supposed to help address what and how to regulate. Intervention is supposed to help address if regulation can (positively or negatively) impact the other areas – usually assuming unwisely that regulation had no negative impact previously, and that regardless it can still impact positively going forward.

Market Structure (#1 #2 #3)
Orthodox economic theories on the market failure of natural monopoly versus perfect competition (along with competition policy and antitrust law approaches to market definition) provide most of the rationale for "heavy handed" (price, service) regulation of utilities, starting with standard economic theories of market structure. Even though many establishment economists acknowledge that natural monopoly and perfect competition are "blackboard" ideals, at the end of the day they are still the benchmarks for whether to regulate or not – and to continue to do so, or not.

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This article was first published by Master Resource in 2015, and was updated and republished by Liberty Works.



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About the Author

Darren Brady Nelson is an Austrian School economist, conservative-libertarian and Christian who lives in Brisbane Queensland but is originally from Milwaukee Wisconsin.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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