Problems with regulating a natural monopoly the

This preview shows 2 out of 3 pages.

Problems with Regulating a Natural Monopoly The problems have to do with incentives and information. a) The cost information is not easy to come by. b) The cost information can be rigged c) The regulators have little incentive to obtain accurate information Regulatory Lag: The period between the time when a natural monopoly’s cost change and the time when the regulatory agency adjust prices for the natural monopoly.
Image of page 2

Subscribe to view the full document.

The Capture Hypothesis Holds that no matter what the motive for the initial regulation and the establishment of the regulatory agency, eventually the agency will be “captured” (controlled) by the special interests of the industry that is being regulated. 1) Persons who have been in the industry will be asked to regulate the industry, since they know more about it. 2) At regulatory hearings, members of the industry will be there in greater force than taxpayers and consumers. 3) Member of the regulated industry will make a point of getting to know the member of regulatory agency. 4) Once they either retire or quit their jobs, regulators often begin to work for the industries they once regulated. The Public Interest Theory of Regulation: Holds that regulators are seeking to do and will do through regulation, what is in the best interest of the public or society at large.
Image of page 3
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern