Wednesday, September 1, 2010
Posted by D. Daniel Sokol
Lewis Evans (Victoria University of Wellington - Econ) and Robert Hahn (University of Manchester - Econ) discuss Regulating Dynamic Markets: Progress in Theory and Practice.
ABSTRACT: A key question facing regulators is how to create an economic environment that encourages appropriate investment and innovation. In this paper we analyze the importance of technological change for both competition and regulation, with a particular focus on the regulation of telecommunications and the Internet. We recommend that dynamic efficiency should be used as the appropriate benchmark for judging the effectiveness of different regulatory approaches. Contrary to conventional wisdom, we find that incentive regulation, such as price caps, is not particularly good at promoting dynamic efficiency. Neither is traditional cost-of-service regulation. As an alternative, we suggested that antitrust, judiciously applied, is likely to be better at promoting dynamic efficiency.