AN ECONOMIC ANALYSIS OF GOVERNMENT OWNERSHIP AND REGULATION: THEORY AND THE EVIDENCE FROM THE ELECTRIC POWER INDUSTRY.

The application of the utility-maximization hypothesis to decision-making within private and political business firms appears to be very fruitful. Several testable propositions were deduced, and a critical review of the published evidence pertaining to the electric power industry generally supports the approach taken. The main findings pertaining to the electric power industry are as follows. The regulation of privately-owned firms seems to yield, among other things, a slightly lower structure of rates which is more favorable to the larger users, and to industrial users in particular, relative to other, more numerous user groups. There is also growing support for the Averch-Johnson overcapitalization hypothesis. The information regarding the consequences of government ownership is richer and more varied, particularly as a result of Peltzman's imaginative research. More specifically, the evidence suggests that municipal firms, relative to privately-owned regulated firms, in general will: charge lower prices; have greater capacity; spend more on plant construction; have higher operating costs; engage in less wealth-maximizing price discrimination, including fewer peak-related tariffs; relate price discrimination less closely to the demand and supply conditions applicable to each group of users; favor business relative to residential users; offer a smaller variety of output; change prices less frequently and in response to larger changes in economic determinants; adopt cost-reducing innovations less readily; maintain managers in office longer; exhibit greater variation in rates of return. [ABSTRACT FROM AUTHOR]