Skip navigation
Hardcover | Out of Print | 352 pp. | 6.3 x 9.1 in | August 1991 | ISBN: 9780262200844
Mouseover for Online Attention Data

Optimal Regulation

The Economic Theory of Natural Monopoly


Optimal Regulation addresses the central issue of regulatory economics - how to regulate firms in a way that induces them to produce and price "optimally." It synthesizes the major findings of an extensive theoretical literature on what constitutes optimality in various situations and which regulatory mechanisms can be used to achieve it. It is the first text to provide a unified, modern, and nontechnical treatment of the field. The book includes models for regulating optimal output, tariffs, and surplus subsidy schemes, and presents all of the material graphically, with clear explanations of often highly technical topics.

Topics include
The cost structure of natural monopoly (economies of scale and scope) • Characterization of firstand second-best optimality • Surplus subsidy schemes for attaining first-best optimality • Ramsey prices and the Vogelsang-Finsinger mechanism for attaining them • Time-ofuse (TOU) prices and Riordan's mechanisms for attaining the optimal TOU prices' Multipart and self-selecting tariffs, and Sibley's method for using self-selecting tariffs to achieve optimality • The Averch-Johnson model of how rate-of-return regulation induces inefficiencies • Analysis of regulation based on the firm's return on Output, costs, or sales • Price-cap regulation • Regulatory treatment of uncertainty and its impact on the firm's behavior • Methods of attaining optimality without direct regulation (contestability, auctioning the monopoly franchise.)

About the Author

Kenneth E. Train is Associate Adjunct Professor in the Department of Economics and Graduate School of Public Policy at the University of California, Berkeley. He is also Principal of the firm Cambridge Systematics.


“Kenneth Train's book is a lucid, thoughtful and interesting exposition of the state of the art. He explains the fundamental economic ideas with simple graphics, rather than emphasizing the complexities underlying the derivation of theorems, and tells the reader what is the 'bottom line'.”
Jerome L. Stein, Professor of Economics, Eastman Professor of Political Economy
“A synthesis of twenty years of theory on the regulation of natural monopoly presented with exceptional clarity.”
Elizabeth E. Bailey, The Wharton School of the University of Pennsylvania