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DEREGULATION, INNOVATION AND MARKET LIBERALIZATION: Electricity Regulation in a Continually Evolving Environment

By L. Lynne Kiesling

189 pages; Routledge, 2009

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Discontent with the state of the electricity market has inspired a steady stream of writings about how best to improve the situation. The writings are dominated by discussions, usually from the same able but convention-bound economists, recognizing the defects of current market regulation, followed by proposals for incrementally improving that regulation. The most recent example to reach me is a special issue of the Energy Journal.

However, going back at least to Richard Posner's classic but badly under-cited 1969 Stanford Law Review article "Natural Monopoly and its Regulation," another view is that regulation is a flawed concept from which public policy should turn. Posner's basic case stated the points that remain central (and many that do not). Even if natural monopoly exists, the monopolist's ability to engage in price discrimination means the absence of efficiency losses. The only consequence of monopoly is a change in income distribution. That alteration is too small and of too unclear impact to justify intervention; action on a single commodity at the regulatory commission level is not the best way to...