Sugata Bag :: Course 608 : Economics of Regulation
Course Outline [[PDF here]]
1) Role of Government. Introduction to the course. The making of a regulation. Possible instrument choices. Why one instrument over another? Social Cost Benefit Analysis. Consequences of regulation.
Read: VVH Chapters 1,2 and 4.
2) Introduction to Economic Regulation. Motivation behind economic regulation. Potential instruments for regulation. Goals of regulation. Historic background.
Read: VVH Chapter 10. , JOS (pp. 34-53)
3) Theories of regulation: normative and positive analysis, interest groups theory
*VVH Chap 4
Posner , R. A. 1974 ” Theories of Regulation” , Bell Journal of Economics and Management Science, 25 (1), Spring, pp. 335- 373.
Stigler, J. G. 1971, “The Theory of Economic Regulation,” Bell Journal of Management Science, 2 (1), Spring, pp. 3 – 21.
Peltzman, S. 1989 “The Economic Theory of Regulation after a Decade of Deregulation,” Brookings Papers on Economic Activity: Microeconomics, pp. 1 – 41.
Becker Gary S. “A Theory of Competition Among Pressure Groups for Political Influence,” The Quarterly Journal of Economics, Vol. 98, No. 3 (Aug 1983), 371-400
4) Public Enterprise. The origins of public ownership as a way to regulate economic activity. Public vs Private ownership. Does the threat of nationalization/municipalization discipline private firms?
VVH Chapter 14.
Vickers and Yarrow (1988)
5) Regulating Natural Monopolies:
(a) Pricing strategies, Rate Structure (RoR, RPI-X), Peak load pricing. Consequences: Averch-Johnson effect. Electric Power Example.
VVH Chapter 11, 12. ; JOS (pp. 76-93; 96-119)
Baumol W. J. and D. F. Bradford, 1970, “Optimal Departures from Marginal Cost Pricing,” American Economic Review, Vol. 60, No. 3, pp. 265-83.
Ramsey, 1927, “A Contribution to the Theory of Taxation,” Economic Journal, Vol. 37, No. 1, pp. 47-61.
AS-03: Section 3.2.4 Choice of ‘X’ in Price Cap Regulation (pp. 59-60); Sections 3.4 (pages. 63-67); Section 4.1 (pages. 71-75)
Frank Mark W. “An Empirical Analysis of Electricity Regulation and Technical Change in Texas,” Review of Industrial Organization. Vol 22, No. 4 (Jun 2003) 313-331
Averch. H., and L. L. Johnson, 1962, “Behavior of the Firm under Regulatory Constraint” ,American Economic Review, Vol. 52, No. 5, pp. 1053-1069
(b) Sustainability of natural monopolies and contestability
VVH Chap 11; JOS (pp.7-31)
Baumol, W. and R. Willig 1981 ” Fixed Costs, Sunk Costs, Entry Barriers and Sustainability of Monopoly “, Quarterly Journal of Economics, 95, August, 405-431
6) Regulating Natural Monopolies (Under Asymmetric Information):Problems of natural monopoly and Conventional theory of regulatory policy solutions (including optimal policies).
Read: *VVH, Chapters 10 and 11., JOS(pp.120-153)
*Laffont, JJ. and Tirole, J. (1993). A Theory of Incentives in Procurement and Regulation. Introduction Chapter.
* Two Hand-outs on Hidden Info and Moral Hazard Models in monopoly set.
*AS-03: Upto 2.2.2 (pp. 1-24) & Section: 2.4 (pp. 35-40)
Demsetz, H., “Why Regulate Utilities?”, Journal of Law and Economics, 1968, pp. 55-65.
7) Franchise Bidding: The Case of Cable Television. Using franchise bidding as an alternative to regulation in the case of a natural monopoly.
* VVH Chapter 13. ; JOS (65-70)
AS-05: pp 24-29 Or, AS-03: Section 4.2 (pp. 76-80)
8) Regulation of Innovation & Patents.
Read: VVH chapter 24.
9) Auction design and spectrum allocation in telecommunications
*Klemperer: Auctions: Theory and Practice (2005). Chapter 1 (only Sec 1 and 4); and Chapter 5 . It is available online at http://www.paulklemperer.org
10) Various topics of contemporary interest
*Stigliz Jospeh E., Andrew Wiss (1981). “Credit Rationing in Markets with Imperfect Information”. American Economic Review Vol 71 No. 3 393-410 ii.
*Dixit Avinash (2009). “Governance Institutions and Economic Activity.” American Economic Review Vol. 99 No. 1: 5-24. iii.
**Adams William, Liran Einav and Jonathan Levin (2009) “Liquidity Constraints and Imperfect Information in Subprime Lending.” American Economic Review Vol. 99 No. 1: 49-84 iv.
**Coval Joshua D. Jakub W. Jurek and Erik Stafford (2009) . “Economic Catastrophe Bonds.” American Economic Review Vol. 99No. 3: 628-666
(1). Dynamic Issues in Natural Monopoly Regulation: Telecommunication Example. What should a regulator do when an industry transforms over time due to exogenous changes that can either (1) change the optimal price or (2) change the industry from a natural monopoly into “something else”?
Read: VVH Chapter 15.
(2). Dynamic Issues in Natural Monopoly Regulation: Telecommunication Example 2. The regulation of wireless telephony. Importance of common standards. Lessons from European Spectrum Auctions.
Read: Klemperer, P. (2002), How (not) to run auctions: The European 3G telecom auctions, European Economic Review, Vol.46, No.4-5, pp.829-845.
(3). Regulation of Energy Markets : Crude oil & Natural Gas.
Read: VVH Chapter 18.
(4). Problems of regulation: The case of UK Railway Privatisation. Background to the restructuring. Regulatory changes and problems. Assessing the effects. Possible remedies.
Read: Pollitt, M.G. and Smith, A.J. (2002) The Restructuring and Privatisation of British Rail: Was it really that bad?, Fiscal Studies, Vol.23, No.4, pp.463-502.
(5). Problems of regulation 2: The Case of Californian Electricity Deregulation. The nature of the reforms in California. How regulatory failure occurred. The costs of regulatory failure. Lessons for deregulation.
Read: Joskow, P. (2001), “California’s electricity crisis.” Oxford Review of Economic Policy, 17(3): pp.365-388.
Term Paper Topics
- Regulation of Energy Market
- Regulating Petroleum Product Prices
- Rent Control and Natural Gas Field Prices
- Electricity Market (Production Cost, Price, Subsidy) Regulation
- Regulation of Transport
- Urban Public Transport (taxi, Trucking)
- Competition Airline regulation (Price Controls, Route Award, Supporting State owned Airline, Occupancy)
- Regulation of Telecom
- Regulation of Pharmaceuticals
- Regulating Urban Piped Water Market
Or any other topic that is relevant to the course