Department of Economics Professor Kenneth Train
University of California, Berkeley Fall Semester 2006
Economics 123
Regulation of Industry
Text: Optimal Regulation, by Kenneth Train, MIT Press, available for sale at ASUC bookstore and for free downloading or reading on-line at http://emlab.berkeley.edu/books/regulation.html.
A Reader containing other assigned readings is available for sale at Copy Central on Bancroft.
Articles marked with * are not included in the reader due to copyright restrictions and are available on-line at www.jstor.org from a UCB IP address.
Class website: http://elsa.berkeley.edu/~train/ec123.html
Requirements: 3 problem sets, 2 midterms, 1 paper, 1 final exam.
Problem sets: You can collaborate on the problem sets if you find this useful. However, you must answer each question in your own words (not copying someone else’s.) Problem sets will be graded only on whether you turned them in and answered the questions in your own words, not on whether your answers are correct. We will go over the answers in class on the day that the problem sets are due. So please make a copy of your answers and bring it to class that day to use in the discussion.
Paper: Choose an area that you find interesting where regulation is currently occurring. Describe how the regulation operates. Discuss the major advantages, limitations and potential inefficiencies that you think might arise from the regulation in this setting. Discuss ways that you think the regulation could perhaps be improved, with the pros and cons for the changes that you suggest. Approximately 8 pages (12 point font, 1 inch margins, 1.5 spacing). Due in class on Dec. 6.
Grading:
Problem sets: 5% each.
Midterms: 15% each.
Paper: 20%.
Final exam: 35%
Missed exams: There will
be no makeup exams. If you miss an exam for reasons beyond your control
(narrowly defined), then the other exams will be up-weighted accordingly, upon
your documentation of the reason and my written approval.
Aug 28: Introduction: The purpose of regulation, review of welfare economics.
Optimal Regulation, Preface
Aug 30: Rate of Return Regulation, Part 1: The behavior of the firm
Optimal Regulation, pp. 19-40
Sept 6: Rate of Return Regulation, Part 2: Results
Optimal Regulation, pp. 40-56
Sept 11: Rate of Return Regulation, Part 3: Further results and empirical evidence
Optimal Regulation, pp. 56-67
Sept 13: Case study: Deregulation of railroads and trucking
McFarland, “The Effects of United States Railroad Deregulation on Shippers, Labor, and Capital,” Journal of Regulatory Economics, Vol. 1, No. 3, pp. 259-270, 1989.
*Ying and Keeler, “Pricing in a Deregulated Environment: The Motor Carrier Experience,” Rand Journal of Economics, Vol. 22, No. 2, pp. 264-273, 1991.
Ellig, “Railroad Deregulation and Consumer Welfare,” Journal of Regulatory Economics, Vol. 21, No. 2, pp 143-167, 2002.
Sept 18: Case Study: Electricity deregulation
Borenstein, “The Trouble with Electricity Markets: Understanding California’s Restructuring Disaster,” Journal of Economic Perspectives, Vol. 16, No. 1, pp. 191-211, 2002.
Sept 20: Incentive Regulation
Optimal Regulation, Ch. 2
Sept 25: Case Study: Demand-side management programs of electric utilities
Train, “Incentives for Conservation in the Commercial and Industrial Sectors,” The Energy Journal, Vol. 9, No. 3, pp. 113-128, 1988.
Train and Strebel, “Energy Conservation and Rebates in Commercial Food Enterprises,” American Journal of Agricultural Economics, Vol. 69, No. 1, pp106-114, 1987.
Train and Atherton, “Rebates, Loans, and Customers’ Choice of Appliance Efficiency Level,” The Energy Journal, Vol. 16, No. 1, pp. 55-69, 1997.
Sept 27: Case Study: Reducing vehicular fuel consumption and emissions
Train, Davis and Levine, “Fees and Rebates on New Vehicles: Impacts on Fuel Efficiency, Carbon Dioxide Emissions, and Consumer Surplus,” Transportation Research E, Vol. 33, No. 1, pp 1-13, 1997.
Oct 2: Case study: Electric utilities’ costs
Berg and Jeong, “An Evaluation of Incentive Regulation for Electric Utilities,” Journal of Regulatory Economics, Vol. 3, No. 1, pp. 45-55, 1991.
Oct 4: Ramsey prices, part 1
Optimal Regulation, pp. 115-135
Oct 9: Ramsey prices, part 2
Optimal Regulation, pp. 135-145
Oct 11: V-F Regulation
Optimal Regulation, pp. Ch. 5
Oct 16: Price Caps
Optimal Regulation, Appendix: pp. 317-328
Oct 18: Case Study: Telecommunications
*Mathios and Rogers, “The Impact of Alternative Forms of State Regulation of AT&T on Direct-Dial, Long-Distance Telephone Rates,” Rand Journal of Economics, Vol. 20, No. 3, 437-453, 1989.
Kaestner and Kahn, “The Effects of Regulation and Competition on the Prices of AT&T Intrastate Telephone Service,” Journal of Regulatory Economics, Vol. 2, No. 4, pp. 363-377, 1990.
Prieger, “Telecommunications Regulation and New Services,” Journal of Regulatory Economics, Vol. 20, No. 3, pp. 285-305, 2001.
Ai and Sappington, “The Impact of Incentive Regulation on the U.S. Telecommunications Industry,” Journal of Regulatory Economics, Vo. 22, No. 2, pp. 133-160, 2002.
Oct 23: Midterm exam
Oct 25: Multipart Tariffs
Optimal Regulation, Ch. 7
Oct 30: Time-of-Use Prices
Optimal Regulation, Ch. 8
Nov 1: Self-Selecting Tariffs
Optimal Regulation, Ch. 9
Nov 6: Case Study: Optional TOU prices for electricity
Train and Toyama, “Pareto Dominance Through Self-Selecting Tariffs: The Case of TOU Electricity Rates for Agricultural Customers,” The Energy Journal, Vol. 10, No. 1, pp. 91-109, 1989.
*Train and Mehrez, "Optional Time-of-Use Prices for Electricity: Econometric Analysis of Surplus and Pareto Impacts," Rand Journal of Economics, Vol. 25, No. 2, pp. 263-283, 1994.
Mastsukawa, “Household Response to Optional Peak-Load Pricing of Electricity,” Journal of Regulatory Economics, Vo. 20, No. 3, 249-267, 2001
Nov 8: Regulating entry
Optimal Regulation, Ch. 10
Nov 13: Case Study: Cable TV
Zupan, “A Test for Regulatory Lag and the Role Played by Periodic Contract Renewals in Mitigating Such Lag in Local Cable Franchise Relationships,” Journal of Regulatory Economics, Vol. 1, No. 1, pp. 1-20, 1989.
Savage and Wirth, “Price, Programming and Potential Competition in US Cable Television Markets,” Journal of Regulatory Economics, Vol. 27, No. 1, pp. 25-46, 2005.
Nov 15: Midterm Exam
Nov 20: Antitrust Laws: Restraint of Trade
Nov 22: No class
Nov 27: Antitrust Laws: Monopolization
Nov 29: Antitrust Laws: Mergers
Horizontal Merger Guidelines, U.S. Department of Justice and Federal Trade Commission, http://www.usdoj.gov/atr/public/guidelines/horiz_book/hmg1.html
Dec 4: Antitrust Laws: Price Discrimination
Dec 6: Antitrust Laws: Tying Agreements