Regulation and the Free Market: The Problem of Boundaries
Volume:Volume 1, No. 1
Issue: Spring 1970
Pages: pp. 6-26
Authors: James W. McKie
Title: Regulation and the Free Market: The Problem of Boundaries
Abstract: The problem of setting appropriate limits to the direct regulation of public utilities is the subject of this article. The problem concerns both the internal and external relationships of the public utility enterprise. Regulation cannot control all of the decisions and internal relationships of the public utility. Regulatory bodies therefore must economize the means and limit the scope of regulation; but they encounter considerable difficulty doing so, because the regulated decisions affect the unregulated ones and the ultimate reactions may escape control.
External limits to regulated activities of public utilities must also be determined. A boundary problem appears whenever regulated activities are intermingled with non-regulated ones, or when public utilities compete with each other or with unregulated industries, or where technological innovation and new forms of organization lead to new kinds of activities for the public utility. Control authorities are always looking for neutral interfaces which will set boundaries to the regulated sectors without affecting activities outside them or relationships that cut across them. But such boundaries are not easy to find.