The book is divided into three major sections. The first presents a theoretical discussion that underlies the other essays. The second section deals with privatization issues from the perspective of the United States. The third describes research addressed to the U. K. and Canada. In the first chapter, Richard Zeckbauser and Murray Horn develop a wide-ranging theoretical framework for assessing the capabilities and role of state-owned enterprises; it provides a foundation for the analyses that follow. In The Control and Perfonnance o[ State-Owned Enterprises , they describe state-owned enterprises as an extreme case of the separation of ownership and control. The focus is on management --the incentives it faces and the conflicts to which it is subjected. The distinguishing characteristics of public enterprise, the authors suggest, give it a comparative advantage over both public bureaucracy and private enterprise in certain situations. They argue that legislators are more likely to prefer SOEs over private enterprise when the efficiency of private enterprise is undermined by regulation or the tbreat of opportunistic state action, when the informational demands of subsidizing private production to meet distributional objectives are high, when it is difficult to assign property rights, or when state ownership is ideologically appealing. These considerations suggest why SOEs are usually assigned special rights and responsibilities, and they help explain observed regularities in the distribution of SOEs across countries and sectors. Zeckhauser and Horn apply principal-agent theory to identify the key factors underlying the performance of state-owned enterprises.

Work on this book began in the Spring of 1983, not long after an Amax Corporation annual budget meeting. As a member of the Amax board of directors since 1979, I had been present at such meetings in which the molybdenum price had been forecast to move higher than $7.00 per pound. The actual annual average prices were $9.70 in 1980, $8.50 in 1981, and $4.00 in 1982. The forecast for 1983 called for prices to return to higher levels, but as both dealer and producer prices declined further, my research began in earnest. Initially, the research was to address the question of why the molybdenum price had declined by more than half in a short period. More fundamental, as other metals prices also declined, was an impelling need to know the causes of the abrupt and sustained reduction in metals price levels that year. As prices stayed at low levels, while those of other materials recovered over the 1983-1986 period, the question became that of why metals prices had remained at startlingly low levels for over five years.

Beginning with railroad regulation in 1887 and continuing for eight decades, the U.S. Federal Government expanded its regulatory scope to cover key transportation, telecommunications and energy sectors. In the last quarter of the 20th century this long-term trend was abruptly and dramatically reversed as important sectors of the U.S. economy were deregulated. This Research Review introduces the causes and effects of this process, and the political and economic forces behind the elimination of regulatory authority.

Work on this book began in the Spring of 1983, not long­ after an Amax Corporation annual budget meeting. As a member of the Amax board of directors since 1979, I had been present at such meetings in which the molybdenum price had been forecast to move higher than $7.00 per pound. The actual annual average prices were $9.70 in 1980, $8.50 in 1981, and $4.00 in 1982. The forecast for 1983 called for prices to return to higher levels, but as both dealer and producer prices declined further, my research began in earnest. Initially, the research was to address the question of why the molybdenum price had declined by more than half in a short period. More fundamental, as other metals prices also declined, was an impelling need to know the causes of the abrupt and sustained reduction in metals price levels that year. As prices stayed at low levels, while those of other materials recovered over the 1983-1986 period, the question became that of why metals prices had remained at startlingly low levels for over five years.

"Fifteen years before the Enron, WorldCom, and Parmalat debacles, another company embarked on a strategy that appeared to be driven more by the allure of short-term profits and compensation for management than by the long-term interests of shareholders. In this case, though, the risks those managers took extended beyond the purely financial to the safety of several large nuclear power plants. A sobering tale, told fairly and skillfully."--Paul Portney, President, Resources for the Future

"MacAvoy and Rosenthal paint a vivid picture of a board of directors ignoring not just red flags, but explicit warnings of the impending calamity, while being calmed by a complacent management. Their book serves as a warning to be absorbed by all boards that diligence, surely post-Enron, requires more than probing the bottom line; it includes all risks to the enterprise, probing beyond management assurances, and appropriate information flow to, and leadership of, the board."--Ira M. Millstein, Senior Partner, Weil, Gotshal & Manges LLP and Chairman of the Private Sector Advisory Group of the World Bank/OECD Global Corporate Governance Forum

"This story is important for anyone with an interest in corporate governance. It makes clear the conflicts that develop and the danger to shareholders when an industry structure changes, but executive compensation systems do not. MacAvoy and Rosenthal provide a penetrating analysis of Northeast's nuclear negligence. At Northeast, an electric utility, regulation was giving way to competition, but no change was occurring in nuclear safety requirements. Northeast executives, whose short-term compensation incentives were based on income, cut nuclear operating andmaintenance costs, making safety violations and plant shutdowns inevitable in the long term. Shareholders suffered while executives were unscathed."--Richard Bower, Leon E. Williams Professor of Finance and Managerial Economics, Emeritus, Tuck School of Business at Dartmouth College

"This book provides an entertaining and informative look at the implications of competition for nuclear safety. It should be read widely."--R. Preston McAfee, J. Stanley Johnson Professor of Business, Economics, and Management, California Institute of Technology, author of "Competitive Solutions: The Strategist's Toolkit"

"Paul MacAvoy and Jean Rosenthal offer an interesting discussion of one of the unforeseen problems associated with deregulating the electric utility industry. Their book will serve as a useful warning to other nuclear power plant operators--and operators in other safety-critical industries, such as airlines--that safety is a constraint, not a variable, in maximizing profits."--Geoffrey Rothwell, Stanford University

Three decades ago, federal policymakers--Republicans and Democrats--embarked on a general strategy of deregulation. In the electricity, gas delivery, and telecommunications industries, the strategy called for restructuring to separate production from transmission and distribution, followed by elimination of price controls. The expected results were lower prices and increased quality, reliability, and scope of services. Paul W. MacAvoy, an economist with forty years of experience in the regulatory field, here assesses the results and concludes that deregulation has failed to achieve any of these goals in any of these industries.
MacAvoy shows that we now have only "partial" deregulation, a mixture of oligopoly structure with direct price control. He explores why this system leads to volatile and high prices, reduced investment, and low profitability, and what policy actions can be implemented to address these problems.

Over the past six decades federal regulatory agencies have attempted different strategies to regulate the natural gas industry in the United States. All have been unsuccessful, resulting in nationwide gas shortages or massive gas surpluses and costing the nation scores of billions of dollars. In addition, partial deregulation has led the regulatory agency to become more involved in controlling individual transactions among gas producers, distributors, and consumers. In this important book, Paul MacAvoy demonstrates that no affected group has gained from these experiments in public control and that all participants would gain from complete deregulation. Although losses have declined with partial deregulation in recent years, current regulatory practices still limit the growth of supply through the transmission system. MacAvoy's history of the regulation of natural gas is a cautionary tale for other natural resource or network industries that are regulated or are about to be regulated.

In recent years, government regulation of industry has had effects throughout the economy. What began nearly a century ago as a single federal agency to curb monopolistic practices of utilities and railroads has become a maze of commissions applying pricing or investment constraints on industries both with and without monopoly power.

These shocks produced and immediate and strong regulatory reaction by US policy makers. More new regulations were instituted for energy markets in the 1970s than for any other product in the economy. How effective was this upsurge in energy policy? MacAvoy, a former member of the Council of Economic Advisers, examines these regulations and policies: their goals, their implementation, their success, and their costs to the economy.

Regulation reached its zenith in the 1960s. The 1980s was the decade of deregulation. The 1990s afford us an important opportunity to assess what is left of regulation and its impact on the economy. And who better to do this than Paul W. MacAvoy, one of America's most respected experts on the economics of industry? Beginning with the Act to Regulate Commerce of 1887, Professor MacAvoy traces the rise of regulation over one hundred years to its sharp curtailment in the 1980s. Originally invoked as a means of controlling the prices set by monopolies, this policy tool found extended use in the last quarter-century to do everything from keeping down energy prices to protecting the health and safety of workers and the quality of the environment. In most cases regulation has been founded on the best of intentions, but as the deregulation of the airline, trucking, and railroad industries in the 1980s made clear there are other ways of achieving social objectives. It is thus useful to ask whether the remaining regulation is having its intended effects, as well as whether there are more effective ways of achieving those same objectives, including strict reliance on open and competitive markets. With this comprehensive study of the economywide effect of regulation, Paul MacAvoy considers just this issue. His analysis begins with price regulation, assessing its impact in terms of lost growth in output due to rigid prices and declining quality of service. He then does the same for health, safety, and environmental protection regulation, this time measuring the higher costs from regulatory standards against safer working conditions and better air quality. He finds that regulation is expensive, particularly when you consider that there are other ways to achieve both greater consumer welfare and a larger economy. In a concluding chapter, Professor MacAvoy looks at regulatory reform and finds plenty of room for further reductions in regulation.

An authority on regulation who has served on the Council of Economic Advisers calls attention to the explosive growth in regulation since the late 1960s and its effects and examines movements for reform and deregulation.