This book will become the bible of regulatory reform. No broad, authoritative treatment of the subject has been available for many years except for Alfred Kahn’s Economics of Regulation (1970). And Stephen Breyer’s book is not merely a utilitarian analysis or a legal discussion of procedures; it employs the widest possible perspective to survey the full implications of government regulation—economic, legal, administrative, political—while addressing the complex problems of administering regulatory agencies.

Only a scholar with Judge Breyer’s practical experience as chief counsel to the Senate Judiciary Committee could have accomplished this task. He develops an ingenious original system for classifying regulatory activities according to the kinds of problems that have called for, or have seemed to call for, regulation; he then examines how well or poorly various regulatory regimes remedy these market defects. This enables him to organize an enormous amount of material in a coherent way, and to make significant and useful generalizations about real-world problems.

Among the regulatory areas he considers are health and safety; environmental pollution, trucking, airlines, natural gas, public utilities, and telecommunications. He further gives attention to related topics such as cost-of-service ratemaking, safety standards, antitrust, and property rights. Clearly this is a book whose time is here—a veritable how-to-do-it book for administration deregulators, legislators, and the judiciary; and because it is comprehensive and superbly organized, with a wealth of highly detailed examples, it is practical for use in law schools and in courses on economics and political science.

• Contents 
• Introduction
• The Object and Approach of This Book
• Limitations
• I 
• A Theory of Regulation
• 1 
• Typical Justifications for Regulation
• The Control of Monopoly Power
• The Traditional Economic Rationale for Regulation.
• Objections to theTraditional Economic Rationale.
• Additional Bases for Regulation.
• Rent Control or “Excess Profits”
• What Is a Rent?
• The Rationale for Regulation.
• Compensating for Spillovers (Externalities)
• What Are Spillovers?
• The Classical Rationale for Regulation.
• Objections to the Classical Rationale.
• A Caveat.
• Inadequate Information
• The Classical Rationale for Regulation.
• Criticisms of the Rationale.
• Excessive Competition: The Empty Box
• Historical Use.
• Current Use.
• Other Justifications
• The Mixture of Rationales
• 2 
• Cost-of-Service Ratemaking
• The System
• The Problems
• Determining the Rate Base.
• Determining the Rate of Return.
• Efficiency.
• The “Test Year”.
• Rate Structure.
• Conclusion
• 3 
• Historically Based Price Regulation
• The System
• The Problems
• Categorization.
• Cost-of-Service Ratemaking.
• Allocation.
• Enforcement.
• New Investment.
• Conclusion
• 4 
• Allocation under a Public Interest Standard
• The System
• Problems
• What Is to Be Allocated?
• The Selection Process.
• The Renewal Process.
• Conclusion
• 5 
• Standard Setting
• The System
• The Procedural Background.
• The Standard-Setting Process.
• Problems Inherent in the Process
• Information.
• Enforcement.
• Anticompetitive Effects.
• Judicial Review.
• Conclusion
• 6 
• Historically Based Allocation
• The System
• The Need for Exceptions
• The Exception Process
• Conclusion
• 7 
• Individualized Screening
• The Food Additive Screening System
• Problems with This Form of Regulation
• Developing a Test for Risk.
• The Use of Experts.
• The Effort to be Comprehensive: Calculating and Weighing Benefits.
• Varying Standards of Selection.
• Conclusion
• 8 
• Alternatives to Classical Regulation
• Unregulated Markets Policed by Antitrust
• Disclosure
• Taxes
• The Creation of Marketable Property Rights
• Changes in Liability Rules
• Bargaining
• Nationalization
• Appropriate Solutions
• 10 
• Match and Mismatch
• 11 
• Mismatch: Excessive Competition and Airline Regulation
• The Industry
• Regulation
• Harmful Effects of Regulation
• Mismatch as Cause
• Price Regulation.
• Route Awards.
• Efficiency.
• The Effort to Regulate Schedules.
• An Alternative to Classical Regulation
• Conclusion
• 12 
• Mismatch: Excessive Competition and the Trucking Industry
• The Industry and Regulation
• The Effects of Regulation
• Alternatives to Classical Regulation
• Conclusion
• 13 
• Mismatch: Rent Control and Natural Gas Field Prices
• The Industry
• Regulation
• Adverse Effects
• The Mismatch and the Shortage
• Firm-by-Firm Cost-of-Service Ratemaking.
• Areawide Cost-of-Service Ratemaking.
• The Mismatch and Natural Gas Allocation
• Standard Setting.
• Public Interest Allocation.
• Negotiation.
• Alternatives
• Conclusion
• 14 
• Partial Mismatch: Spillovers and Environmental Pollution
• The Problems of Standard Setting
• Incentive-Based Systems: Taxes and Marketable Rights
• In Principle.
• A More Practical Comparison.
• Conclusion
• 15 
• Problems of a Possible Match: Natural Monopoly and Telecommunications
• The Characteristics of the Longline Problem
• The Industry and the Service.
• Regulation and Joint Costs.
• The Entry of Competition into Long-Distance Telecommunications.
• The FCC's Response to the Problem
• Above 890.
• MCI.
• Specialized Common Carriers (SCCs).
• AT&T's Competitive Response: Special Rates.
• Docket 18128.
• Expanding the Area of Competition.
• The Basic Choices
• Conclusion
• III 
• Practical Reform
• 16 
• From Candidate to Reform
• The Elements of Implementation
• The Kennedy Hearings
• Preparation.
• The Actual Hearings.
• Conclusion
• 17 
• Generic Approaches to Regulatory Reform
• Better Personnel
• Procedural Changes
• Fairness and Efficiency.
• Legitimacy.
• Structural Change
• Managerial Proposals.
• Supervisory Proposals.
• New Institutions.
• Encouraging Substantive Reform
• Impact Statements.
• Encouraging Step-by-Step Reform.
• Appendix 1 
• The Regulatory Agencies
• Appendix 2 
• A Note on Administrative Law
• Further Reading
• Notes
• Index