Modern economic regulation: an introduction to theory and practice

Economic regulation affects us all, shaping how we access essential services such as water, energy and transport, as well as how we communicate with one another in the digital world. Modern Economic Regulation describes the core insights of economic theory on which regulatory policies are based and connects this with evidence of how regulation is applied. It focuses on fundamental questions such as: why are certain industries regulated? What principles can inform regulation? How is regulation implemented? Which regulatory policies have been more, or less, effective in practice? All chapters in this second edition are fully updated to reflect the latest research and evidence, while five new chapters cover behavioural economics and the regulation of rail, aviation, payment systems and digital platforms. Each chapter contains discussion questions and topical case studies, and online materials include over 60 applied exercises that explore real-life regulatory problems from around the world.

Drawing from the most recent work on economic regulation, this book introduces readers to the main principles and examines how economic regulation is applied in four key public utility industries - electricity, gas, water and telecommunications. Written for students and practitioners with little prior knowledge of economic regulation, this is an accessible, non-technical entry point to the subject area, exploring the fundamental questions: Why do we regulate? What are alternatives to regulation? Which institutions are involved in regulation? What have been the impacts of regulation? Readers will gain a clear understanding of the basic principles that apply to all regulated sectors, as well as the regulatory choices that reflect the specific economic and physical characteristics of different industries. Case studies demonstrate connections between regulatory theory and practice, and extensive references provide readers with resources for more in-depth study.

Cover -- Half-title page -- Title Page -- Copyright page -- Contents -- Figures -- Tables -- Boxes -- Selected acronyms and abbreviations -- 1 Introduction -- 1.1 What is meant by economic regulation? -- 1.2 What is 'modern' about economic regulation? -- 1.3 N ew experience and analysis -- 1.4 S tructure of the book -- PART I -- 2 The recurring question: why regulate utilities? -- 2.1 Normative rationales for public utility regulation -- 2.2 Alternative explanations for public utility regulation -- 2.3 Implications of the different rationales for regulation -- 3 Alternatives to traditional regulation -- 3.1 Is economic regulation inevitable? -- 3.2 Competition for the market -- 3.3 Contestability and the threat of entry -- 3.4 State ownership of the utilities -- 3.5 Reliance on ex post competition law -- 3.6 'Deregulation' policies and a reliance on competition -- 3.7 Negotiated settlements -- 3.8 Other alternative approaches to public utility regulation -- 3.9 Conclusion -- PART II -- 4 Principles of regulation for core network activities -- 4.1 Public utility industry structures -- 4.2 Pricing principles under full information -- 4.3 Pricing principles for the multi-product firm -- 4.4 Regulation in the context of imperfect information -- 4.5 Pricing in a multi-period context -- 4.6 Principles relating to quality and cost reduction -- 4.7 Conclusion -- 5 Forms of price regulation -- 5.1 Rate of return regulation -- 5.2 Price cap regulation -- 5.3 The relationship between rate of return and price cap -- 5.4 Hybrids and adaptations to traditional price regulation -- 5.5 Price regulation when competition is emerging -- 5.6 Conclusion -- 6 Regulation in the presence of competition -- 6.1 Access in the public utility industries -- 6.2 One-way access pricing -- 6.3 Two-way access pricing -- 6.4 Access pricing and investment.