Coasean Quality of Regulated Goods

In: The B.E. journal of economic analysis & policy, Band 16, Heft 4

Abstract

Abstract
The quality of goods provided by public utilities depends on infrastructure features and operational inputs. I compare the economic efficiency that results from price ceilings and minimum quality standards (i. e., compliance with environmental, chemical, and performance standards and norms) imposed by a benevolent regulator to a Coasean bargaining solution between a median consumer and a monopolist. When quality is non-excludable and non-rival, rate-of-return regulation yields higher economic efficiency than price cap regulation.