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Word Count: 588
As one of the foremost experts of the topic Professor Jean-Jacques Laffonte believes in the importance of applying economics to the debate over utility regulation in the United States He sees regulation as the new frontier in the socialist debate In other words should public intervention be part of our economy One of the topics to which this question leads is telecommunication pricing in rural and urban areas and universal service litigation The debate is over how certain natural monopolies should be regulated between the new and old versions Along with this is the argument over the rapidly expanding practice of privatization which is being executed in some unfit places Specifically these issues can be seen in the California power crisis and how much competition should be allowed Natural monopolies exist when the nature of the good or service makes it inefficient for more than one firm to produce it Some common examples of this are railways pipelines electric grids and local phone loops In certain cases competition can be preserved by allowing other firms access to their facilities For example railways can allow other trains and phone companies can allow use of their networks to long distance providers Professor Laffonte notes that some critics reject the theory of natural monopoly as an invention of economists In many of these cases however deregulation ends up requiring more regulation in order to preserve competition Non-regulated monopolies are inefficient because they restrict supply Therefore the past model had been used for regulation This system requires price to be at marginal cost with government subsidies making up for any losses There are two major problems with this system The first is that politicians determine the size of the subsidies and many politicians should not make such a determination The other problem is the deadweight loss from any tax on consumers Professor Laffonte refers to this loss as a distortion that causes US citizens to pay 130 to
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