The Unsustainable Costs of Partial Deregulation

Three decades ago, federal policymakersRepublicans and Democratsembarked on a general strategy of deregulation. In the electricity, gas delivery, and telecommunications industries, the strategy called for restructuring to separate production from transmission and distribution, followed by elimination of price controls. The expected results were lower prices and increased quality, reliability, and scope of services. Paul W. MacAvoy, an economist with forty years of experience in the regulatory field, here assesses the results and concludes that deregulation has failed to achieve any of these goals in any of these industries. MacAvoy shows that we now have onlypartialderegulation, a mixture of oligopoly structure with direct price control. He explores why this system leads to volatile and high prices, reduced investment, and low profitability, and what policy actions can be implemented to address these problems.

Paul W. MacAvoy is Williams Brothers Professor Emeritus of Management Studies and former dean of the School of Management, Yale University. In the Ford administration, he served as a member of the Council of Economic Advisers. MacAvoy is the author of fifteen books, including The Natural Gas Market: Sixty Years of Regulation and Deregulation, published by Yale University Press. He lives in Etna, NH, and Sarasota, FL.