Regulation and Its Reform

A timely if somewhat padded reprise of the basics of economic regulation - drawing upon Breyer's experience as an architect of airline deregulation in the late 1970s. A regulatory scheme, he maintains, must match the type of regulation it employs with the free-market defect it seeks to cure. Setting emission standards for pollution control, for example, will not be as successful as government-sold rights to pollute - because the former entails extraordinary administrative costs, discourages voluntary compliance, and does not distinguish between firms which can abate pollution cheaply and those which cannot. ICC regulation of prices and entry in the trucking industry is another mismatch: such controls, appropriate for natural monopolies like electricity or telecommunications, merely muck up a structurally competitive industry like trucking. Correspondingly, Breyer dismisses as tangential such generic attempts at regulatory reform as the legislative veto or increased consumer-input in agency decision-making. Rather, reform must proceed case by case, industry by industry - guided by consistently applied economic analysis, not by political pressures or institutional concepts. Breyer hasn't succumbed to deregulation fever altogether: he admits, for instance, the uncertain strength of the case for deregulation of the long-distance telephone industry. But he is full of awe at the efficiency of the free market; and citing the high prices, lessened competition, and occasional shortages which result from misguided regulation, he emphatically places the burden of proof on those who would tinker with the workings of laissez-faire. Approximately half the book is thesis - the principles of regulation; half, an industry-by-industry rundown (most interesting, by far, as regards the airlines). And its very compendiousness is a burden. But it does provide a report on the thinking and activity in the deregulation movement - as regards everything from seat belts to saccharin. (Kirkus Reviews)