Variable Costs and the Visible Hand: The Re-regulation of Electricity Supply, 1932-37.

Under an Act of 1926, a 'public interest' corporation, the Central Electricity Board, was empowered to build a national transmission grid and rationalize U.K. electricity generation. A constrained cost model estimates the gains from this reregulation of the electricity generating industry. The new regime reduced costs by one-third, radically improving the utilization of capital and boosting the average scale of operations. It did so by persuading private and municipal enterprises to accept central direction of the extent and timing of their electricity generation. This voluntarism saved on enforcement costs, but perhaps one-half of the industry cost reduction the Central Electricity Board actually achieved by 1937 was apparently forgone. Copyright 1997 by The London School of Economics and Political Science