Economics of regulation: externalities and institutional issues
In two previous articles, ''Can An Economist Find Happiness Setting Public Utility Rates'' and ''Applications of Economics to Public Utility Rate Structures'', appearing in Public Utilities Fortnightly January 5 and January 19, 1978, respectively, the author summarized his experiences in applying elementary economic principles to the regulation of public utilities in New York state, specifically to setting utility rates. In this article, Mr. Kahn discusses second-best considerations and externalities. He points out that opponents of marginal-cost pricing--particularly of electricity--have in recent years become enthusiastic exponents of the theory of second best. What is required, he feels, is an examination of how other, most directly pertinent prices in the economy do actually stand relative to their marginal costs. These would be the prices of goods and services for which electricity is a substitute; with which electricity is used as a complement; in whose supply electricity is an input; and which themselves constitute inputs in the production and delivery of electricity. Oil and gas are more complicated cases. External costs, such as abatement requirements, are considered when setting rates. The author points out other regulatory issues to be considered in decision making to conclude this series of articles. (MCW)
- OSTI ID:
- 5146655
- Journal Information:
- Public Util. Fortn.; (United States), Vol. 101:3
- Country of Publication:
- United States
- Language:
- English
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POLICY AND ECONOMY
ELECTRIC POWER
MARGINAL-COST PRICING
PUBLIC UTILITIES
ECONOMICS
REGULATIONS
ACCOUNTING
ALLOCATIONS
CHARGES
DECISION MAKING
ENVIRONMENTAL EFFECTS
LEGAL ASPECTS
NATURAL GAS INDUSTRY
NEW YORK
WATER
HYDROGEN COMPOUNDS
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