IDEAS home Printed from https://ideas.repec.org/a/bla/coecpo/v27y2009i2p193-199.html
   My bibliography  Save this article

Common Costs And Cross‐Subsidies: Misestimation Versus Misallocation

Author

Listed:
  • MARK L. BURTON
  • DAVID L. KASERMAN
  • JOHN W. MAYO

Abstract

Existing models of cross‐subsidization have focused on either ex ante distortions to investments or misallocations of common costs as the principal sources of cross‐subsidies in regulated firms. In this paper, we identify a third vehicle for such cross‐subsidization that, given regulators’ preferences, is not only likely but likely to be prominent; namely, the misestimation of the magnitude of common costs. Because our results incorporate regulators’ preferences, they may provide the necessary building block for a positive theory of the magnitude of observed common costs that has, heretofore, been absent in the literature. (JEL L51, L97)

Suggested Citation

  • Mark L. Burton & David L. Kaserman & John W. Mayo, 2009. "Common Costs And Cross‐Subsidies: Misestimation Versus Misallocation," Contemporary Economic Policy, Western Economic Association International, vol. 27(2), pages 193-199, April.
    • Handle: RePEc:bla:coecpo:v:27:y:2009:i:2:p:193-199
    DOI: 10.1111/j.1465-7287.2008.00116.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1465-7287.2008.00116.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1465-7287.2008.00116.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kaserman, David L & Mayo, John W & Flynn, Joseph E, 1990. "Cross-Subsidization in Telecommunications: Beyond the Universal Service Fairy Tale," Journal of Regulatory Economics, Springer, vol. 2(3), pages 231-249, September.
    2. Cavalluzzo, KS & Ittner, CD & Larcker, DF, 1998. "Competition, efficiency, and cost allocation in government agencies: Evidence on the Federal Reserve System," Journal of Accounting Research, Wiley Blackwell, vol. 36(1), pages 1-32.
    3. Gal-Or, Esther, 1993. "Strategic Cost Allocation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 387-402, December.
    4. T. Randolph Beard & David L. Kaserman & John W. Mayo, 2003. "A Graphical Exposition of the Economic Theory of Regulation," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 592-606, October.
    5. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
    6. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    7. Faulhaber, Gerald R, 1975. "Cross-Subsidization: Pricing in Public Enterprises," American Economic Review, American Economic Association, vol. 65(5), pages 966-977, December.
    8. Temin, Peter, 1990. "Cross Subsidies in the Telephone Network after Divestiture," Journal of Regulatory Economics, Springer, vol. 2(4), pages 349-362, December.
    9. Baumol, William J, 1996. "Predation and the Logic of the Average Variable Cost Test," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 49-72, April.
    10. Brennan, Timothy J, 1990. "Cross-Subsidization and Cost Misallocation by Regulated Monopolists," Journal of Regulatory Economics, Springer, vol. 2(1), pages 37-51, March.
    11. Ronald R. Braeutigam, 1980. "An Analysis of Fully Distributed Cost Pricing in Regulated Industries," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 182-196, Spring.
    12. Alfred E. Kahn, 1988. "The Economics of Regulation: Principles and Institutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610523, December.
    13. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 371-400.
    14. Randolph Beard, T. & Kaserman, David L. & Mayo, John W., 0. "On the impotence of imputation," Telecommunications Policy, Elsevier, vol. 27(8-9), pages 585-595, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gregory Rosston & Michael Topper, "undated". "An Antitrust Analysis of the Case for Wireless Network Neutrality," Discussion Papers 08-040, Stanford Institute for Economic Policy Research.
    2. Rosston, Gregory L. & Topper, Michael D., 2010. "An antitrust analysis of the case for wireless network neutrality," Information Economics and Policy, Elsevier, vol. 22(1), pages 103-119, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sumit K. Majumdar, 2011. "Cross Subsidization And Telecommunications Sector Wages," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 82(1), pages 1-24, March.
    2. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.
    3. John W. Mayo & David E. M. Sappington, 2016. "Regulation in a ‘Deregulated’ Industry: Railroads in the Post-Staggers Era," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 203-227, September.
    4. Estache, Antonio & Martimort, David, 1999. "Politics, transaction costs, and the design of regulatory institutions," Policy Research Working Paper Series 2073, The World Bank.
    5. Tomaso Duso, 2005. "Lobbying and regulation in a political economy: Evidence from the U.S. cellular industry," Public Choice, Springer, vol. 122(3), pages 251-276, March.
    6. María Angeles García Valiñas, 2004. "Eficiencia y equidad en el diseño de precios óptimos para bienes y servicios públicos," Hacienda Pública Española / Review of Public Economics, IEF, vol. 168(1), pages 95-119, march.
    7. Rafał Nagaj, 2013. "Regulacyjna rola państwa na przykładzie polskiego rynku usług telekomunikacyjnych i elektroenergetyki," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5-6, pages 43-67.
    8. Babacan, Mehmet, 2012. "The Nature of Lobbying and Regulation in Turkey," MPRA Paper 57830, University Library of Munich, Germany.
    9. Dennis W. Carlton & Randal C. Picker, 2014. "Antitrust and Regulation," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 25-61, National Bureau of Economic Research, Inc.
    10. Mark A. Jamison, 2011. "Liberalization and Regulation of Telecoms, Electricity, and Gas in the United States," Chapters, in: Matthias Finger & Rolf W. Künneke (ed.), International Handbook of Network Industries, chapter 21, Edward Elgar Publishing.
    11. Maurice Baslé, 1997. "Le changement institutionnel peut-il être analysé comme évolutionnaire ? quelques limites de l'approche économique standard et quelques voies ouvertes à l'approche évolutionnaire," Post-Print hal-02081216, HAL.
    12. Keith Jakee & Leonie Allen, 1998. "Destructive Competition or Competition Destroyed? Regulatory Theory and the History of Irish Road Transportation Legislation," European Journal of Law and Economics, Springer, vol. 5(1), pages 13-50, January.
    13. Gregory L. Rosston & Scott J. Savage & Bradley S. Wimmer, 2006. "The Impact of "Deregulation" on Regulator Behavior: An Empirical Analysis of the Telecommunications Act of 1996," Discussion Papers 05-006, Stanford Institute for Economic Policy Research.
    14. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
    15. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659, Elsevier.
    16. Rodrigo M. S. Moita & Claudio Paiva, 2013. "Political Price Cycles in Regulated Industries: Theory and Evidence," American Economic Journal: Economic Policy, American Economic Association, vol. 5(1), pages 94-121, February.
    17. Hahn Robert, 2010. "Designing Smarter Regulation with Improved Benefit-Cost Analysis," Journal of Benefit-Cost Analysis, De Gruyter, vol. 1(1), pages 1-19, July.
    18. Grant H. Lewis, 2017. "Effects of federal socioeconomic contracting preferences," Small Business Economics, Springer, vol. 49(4), pages 763-783, December.
    19. Deniz Igan & Prachi Mishra & Thierry Tressel, 2012. "A Fistful of Dollars: Lobbying and the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 195-230.
    20. Robert Gmeiner, 2019. "Regulatory capture in the US petroleum refining industry," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(4), pages 459-498, December.

    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:coecpo:v:27:y:2009:i:2:p:193-199. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.