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Regulation by Demand: A New Institutional Approach to the Natural Monopoly Problem

Kruse, Jörn (1980) Regulation by Demand: A New Institutional Approach to the Natural Monopoly Problem. Social Science Working Paper, 342. California Institute of Technology , Pasadena, CA. (Unpublished)

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Regulation-by-demand, a new institutional design for the natural monopoly system, is based on the demanders’ participation in the industry’s regulatory process. Conventional rate of return regulation fails to implement allocative efficiency and is subject to significant limitations and distortions in its information processing, which prevents the preferences from being disclosed. It is suggested that, if a utility function that encompasses quality characteristics is considered, the failures in the industry’s performance are even more severe than what is usually acknowledged. Regulation-by-demand provides allocatively functional incentives for reliable information processing and for efficient performance of the industry. It has significant advantages of institutional flexibility if the industry looses its natural monopoly properties.

Item Type:Report or Paper (Working Paper)
Additional Information:Research and publication of this paper is sponsored in part by the American Council of Learned Societies.
Group:Social Science Working Papers
Funding AgencyGrant Number
American Council of Learned SocietiesUNSPECIFIED
Series Name:Social Science Working Paper
Issue or Number:342
Record Number:CaltechAUTHORS:20171009-145308908
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82230
Deposited By: Jacquelyn Bussone
Deposited On:09 Oct 2017 22:09
Last Modified:03 Oct 2019 18:52

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