This paper shows how scale economies affect welfare-maximizing regulation and regulated firms' investment behavior. Price-regulated firms take less advantage of scale economies than social planners, with greater investment distortions for greater economies of scale. Price caps should be below...

Positive models of public-utility regulation should capture personal incentives of regulators. A regulatory objective function is specified by appeal to standard human concerns coupled with politics and processes peculiar to public-utility regulation. Constraints a rational regulator would...

Incentive regulation allows decentralised decision-making under regulatory parameters set on the basis of industry characteristics. When there is uncertainty, sunk costs, and flexibility in the timing of investment a monopoly will invest later than is socially desirable because it garners only a...