Introduction to Economic Regulation. Economic regulation "refers to government-imposed restrictions on firm decisions over price, quantity, and entry and exit” [Viscusi, Vernon, and Harrington, p. 307].
Economic regulation "refers to government-imposed restrictions on firm decisions over price, quantity, and entry and exit” [Viscusi, Vernon, and Harrington, p. 307].
In contrast to social regulation, economic regulation involves the oversight of specific industries such as railroads, trucking, electrical utilities, and telephone service by "old style" regulatory agencies.
The tools of economic regulation include control of price, control of quantity, control or entry and exit, or control of other variables.
Viscusi, Vernon, and Harrington describe a 3 stage regulatory process. These stages are:
Congress, a state legislature, city council, etc. passes a law that establishes regulatory authority over a particular industry. The legislation often supplies a broadly defined mandate to the responsible agency (which may have been created as a result of the legislation).
Example: 1938 Civil Aeronautics Act--the Civil Aeronautics Board (CAB) created to: (1) promote airline safety; (2) to insure the industry operates in an economically sound fashion; and (3) to allow for the adaptation of the airline system to the commercial, postal, and defense needs of the country.
It is up to the regulatory agency to implement the legislation. Thus, the first problem for the CAB was : How should the mandate issued by Congress be
implemented in practice?
The CAB determined that its primary objective should be to insure that “economical” air service would be widely available.
The 1971-96 is called the "era of deregulation" because of the major deregulatory initiatives passed—e.g., the abolition of fixed brokerage fees by the SEC in 1975, the Motor Carrier Reform Act
of 1980, and the Telecommunications Act of 1996.
For an overview see Clifford Winston, "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, September 1993:1263-1289.
Hear Professor Brown’s comment on travails of United Airlines, et al. (wav)
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