ABSTRACT
This chapter reviews briefly the recent evolution of the academic perspective on optimal economic regulation by reference to selected representative publications from the 1970s to the 1990s. Carefuly attention to developments in the theory of optimal economic regulation can help regulatory agencies to pursue the interests of consumers successfully. Of course, such price discrimination is one area at least where there could be tensions between the approaches of economic regulators and of competition authorities. An important shortcoming of the approach to economic regulation just discussed is that it makes formidable data and computational demands on regulators. Price-cap regulation mimics a competitive market in which the producer cannot influence the price and can increase profits only by reducing costs. Economic regulators arrive from out of the blue to correct the imperfections of the market without themselves being analysed as entities pursuing their own institutional or other objectives within the same world that the other actors also form part of scale.
