IPcentral Weblog
  The DACA Blog

Thursday, November 20, 2003

 
Dean and "Re-regulation"
(previous | next)
 

Regulatory policy peeked its head into the presidential race in the past couple of days. It will no doubt fade back into acronym-laced obscurity. But first, a comment.

Governor Dean called for "re-regulation" of industries, including telecom and electricity. Today, Senator Lieberman and General Clark shot back that Dean's calls for reregulation would be harmful.

Debates premised on a regulation/deregulation axis are rarely illuminating. But let's try.

The issue is one of consumer welfare and how that can best be maximized within the context of real institutions -- corporate and regulatory. In network industries--content, telecommunications, airlines, electricity--there are enormous economies of scale to be achieved through declining average costs, network effects, interoperability and the like. This means big businesses. And these big businesses are good for consumers because their scale allows them to offer low cost products to consumers. Furthermore, the diseconomies of big business -- bureaucracy, manifold agency problems and the like -- are swamped by the economies of scale in these high fixed cost, low marginal cost network industries.

Regulatory institutions, by contrast, have their own problems that we have learned through experience. There are huge information asymmetry problems between regulator and regulated entity. There are enormous incentives for the regulatee to capture the regulator. (Witness AT&T's relationship with the FCC 1934 through the 1970s.) Finally, the tools of regulation stifle and resist innovation and technological dynamism. (Again, witness the FCC's decade-plus delay in wireless phone rollout.) These problems and the dynamism brought out by the digital revolution made a transition to competitive markets possible. Notably, this was a consensus political position. The likes of Stephen Breyer and Alfred Kahn looked at regulation in the 1970s and concluded that consumers would be better off if these closely-regulated network industries were transitioned to competitive markets.

The proper regulation/deregulation policy mix is a prudential decision and thus tough to satisfy with neat, ideological answers. Experience teaches us that consumers benefit, often wildly, from ending administrative regulation of a given industry. That said, the transition is important, and perilous. Incentives for regulatory gaming -- by different parts of the industry and regulators themselves -- go through the roof during these transitions. An improper mix of regulatory and market mechanisms can mean disaster. Witness the California power experience, where the glaring problem was wholesale power worked on a market basis (sort of), while the retail level remained regulated and thus never signaled the wholesale prices of energy to consumers.

In the end, I remain convinced that consumers have much to gain from ending administrative regulation in network industries. But that has to be done at the right time and in the right way. These are the interesting questions. Nonetheless, it is encouraging to see that the Democratic party still has some spokesmen who believe markets serve consumers better than regulation.

posted by Ray Gifford @ 12:45 PM | General

Share |

Link to this Entry | Printer-Friendly

Post a Comment:





 
Blog Main
RSS Feed  
Recent Posts
  EFF-PFF Amicus Brief in Schwarzenegger v. EMA Supreme Court Videogame Violence Case
New OECD Study Finds That Improved IPR Protections Benefit Developing Countries
Hubris, Cowardice, File-sharing, and TechDirt
iPhones, DRM, and Doom-Mongers
"Rogue Archivist" Carl Malamud On How to Fix Gov2.0
Coping with Information Overload: Thoughts on Hamlet's BlackBerry by William Powers
How Many Times Has Michael "Dr. Doom" Copps Forecast an Internet Apocalypse?
Google / Verizon Proposal May Be Important Compromise, But Regulatory Trajectory Concerns Many
Two Schools of Internet Pessimism
GAO: Wireless Prices Plummeting; Public Knowledge: We Must Regulate!
Archives by Month
  September 2010
August 2010
July 2010
June 2010
  - (see all)
Archives by Topic
  - A La Carte
- Add category
- Advertising & Marketing
- Antitrust & Competition Policy
- Appleplectics
- Books & Book Reviews
- Broadband
- Cable
- Campaign Finance Law
- Capitalism
- Capitol Hill
- China
- Commons
- Communications
- Copyright
- Cutting the Video Cord
- Cyber-Security
- DACA
- Digital Americas
- Digital Europe
- Digital Europe 2006
- Digital TV
- E-commerce
- e-Government & Transparency
- Economics
- Education
- Electricity
- Energy
- Events
- Exaflood
- Free Speech
- Gambling
- General
- Generic Rant
- Global Innovation
- Googlephobia
- Googlephobia
- Human Capital
- Innovation
- Intermediary Deputization & Section 230
- Internet
- Internet Governance
- Internet TV
- Interoperability
- IP
- Local Franchising
- Mass Media
- Media Regulation
- Monetary Policy
- Municipal Ownership
- Net Neutrality
- Neutrality
- Non-PFF Podcasts
- Ongoing Series
- Online Safety & Parental Controls
- Open Source
- PFF
- PFF Podcasts
- Philosophy / Cyber-Libertarianism
- Privacy
- Privacy Solutions
- Regulation
- Search
- Security
- Software
- Space
- Spectrum
- Sports
- State Policy
- Supreme Court
- Taxes
- The FCC
- The FTC
- The News Frontier
- Think Tanks
- Trade
- Trademark
- Universal Service
- Video Games & Virtual Worlds
- VoIP
- What We're Reading
- Wireless
- Wireline
Archives by Author
PFF Blogosphere Archives
We welcome comments by email - look for a link to the author's email address in the byline of each post. Please let us know if we may publish your remarks.
 










The Progress & Freedom Foundation