Conferences.

Economic Regulation

NBER Research Associate Nancy L. Rose of MIT organized a conference on Economic Regulation that took place on September 9 and 10 m Cambridge. The following papers were discussed:

Dennis Carlton, University of Chicago and NBER. and Randal Picker, University of Chicago, "Antitrust and Regulation Discussant: Timothy Bresnahan, Stanford University and NBER

Paul Joskow, MIT and NBER, "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks" Discussant: David Sappington, University of Florida

Jerry Hausman, MIT and NBER. and J. Gregory Sidak, American Enterprise Institute, "Telecommunications Regulation: Current Approaches with the End in Sight"

Discussant: Joseph Farrell, University of California, Berkeley

Frank Wolak, Stanford University and NBER, "Regulating Competition in Wholesale Electricity Supply" Discussant: Catherine Wolfram, University of California, Berkeley and NBER

Severin Borenstein, University of California, Berkeley and NBER, and Nancy L. Rose, "Regulatory Reform in the Airline Industry" Discussant: Steven Berry, Yale University and NBER

Randall Kroszner, University of Chicago and NBER, and Philip Strahan, Boston College and NBER, "Regulation and Deregulation of the U.S. Banking Industry: Causes, Consequences, and Implications for the Future"

Discussant: Charles Calomiris, Columbia University and NBER Gregory Crawford, University of Arizona, "Cable Television: Does Cable Need to be Regulated Any More?"

Discussant: Tasneem Chipty, CRA International

Patricia Danzon, University of Pennsylvania and NBER, and Eric Keuffel, University of Pennsylvania, "Regulation of the Pharmaceutical Industry"

Discussant: Ernst Berndt, MIT and

Eric Zitzewitz, Stanford University, "Financial Regulation in the Aftermath of the Bubble"

Discussant: Jonathan Macey, Yale University

Roberton Williams, University of Texas at Austin and NBER, "Market-Based Environmental Regulation" Discussant: Erin Mansur, Yale University

The past thirty years have witnessed an extraordinary transformation of government intervention in broad segments of the economy, both in the United States and in many other nations. Many industries historically subject to economic regulation, particularly those in multi-firm sectors such as trucking, airlines, and banking, have been largely deregulated. "Natural monopoly" industries, such as electricity and telecommunications, have been restructured, and traditional regulation or state ownership has been replaced by market-based institutions. Much of this reform movement was supported by economic analyses that highlighted the inefficiencies of historical regulatory policies and suggested the prospect of substantial gains from regulatory reform. Early studies of the aftermath of deregulation confirmed many of the anticipated benefits, particularly in structurally competitive sectors, and may have spurred extension of regulatory reform to other industries. In recent years, however, some have challenged the wisdom of those policies, even proposing the reintroduction of regulation in some sectors.

This National Bureau of Economic Research project analyzes the performance of regulatory reform and restructuring across a broad group of industries and settings. The papers at this conference provide an overview of key issues surrounding economic regulation and assessment of the economic consequences of regulatory reforms over the past three decades, and discuss some of the most significant contemporary concerns about these reforms.

More than a century ago, Carlton and Picker note, the federal government started regulating competition, first railroads through the Interstate Commerce Act and then the general economy under the Sherman Act. The former assigned primary responsibility to the Interstate Commerce Commission (ICC), while the Sherman Act relied for its implementation on federal courts. Since that time, there has been an ongoing struggle to define the appropriate substantive scope for regulating competition and to determine the right mechanism for implementing that policy. As the antitrust laws evolved and harmed certain interest groups, these groups often sought and got explicit exemptions and even legislation protecting them from entry. Other interest groups wound up with regulation as an alternative to facing antitrust liability and had to share the benefits of regulation with other interest groups. Many exemptions and regulatory agencies were formed as responses to unfavorable antitrust decisions. For example, the railroads certainly had the incentive, and perhaps even good economic reasons, to agree on rates and could do so prior to the Sherman Act without fear of federal prosecution. The Supreme Court's decision in Trans-Missouri changed that, as it made clear that the Sherman Act condemned private collective rate setting. But if private collective rate setting was forbidden, it was left unclear how to implement public rate setting, because the ICC lacked the power to set rates. The Interstate Commerce Act itself needed a series of amendments before the ICC received true rate-setting power. The core issue in network industries today, whether telecommunications, transportation, or electricity, is interconnection and mandatory access. The salience of these issues has increased as reform-induced restructuring has led to vertical disintegration of firms, and increased competition with incumbents in many industry segments. The tension between antitrust and regulatory solutions to these problems continues. The Supreme Court's decision in Trinko suggests that antitrust will not be viewed as a substitute for regulation of interconnection in network industries and that firms seeking interconnection will need to look...