Introduction

Market economies face the same problem throughout the world: how to deal with technologies that complicate the smooth functioning of competition. Television, telephone, water, natural gas, electricity, and railroad transportation illustrate large and/or complex technologies, the use of which, for one reason or another, is guided in many countries by administrative institutions rather than competitive markets. Our aim is to examine the circumstances that cause alternative means of regulation to be substituted for competition, and to consider the approaches taken. We shall find that although normative guidelines can be developed for the alternative institutions, incentives to use them are weak or nonexistent. Designing institutions so they will pursue social goals is not a simple matter, and creating real institutions with that aim is even more difficult.

In the United States an unusual solution to the regulatory problem was chosen for many services. The services are still provided by privately owned firms, but those firms are regulated by public agencies. The firms are called public utilities, a title traceable to their nineteenth-century origin, and they are seen as providing goods or services in which the general public has a great interest. The public regulatory agencies that oversee them are commonly operated at the state level, as a Public Service Commission, State Corporation Commission, or similarly titled agency. The vast majority of electricity, natural gas, television, and local telephone service, plus large amounts of water, public transportation, and other services are provided by privately owned and governmentally regulated public utilities.