Showing papers in "Yale Journal on Regulation in 1994"

The Pricing of Inputs Sold to Competitors

Abstract: Local telephone companies have long been regulated as natural monopolies. However, technological innovation and the prospect of falling regulatory barriers to entry now expose some portions of the local exchange to competition from cable television systems, wireless telephony, and rival wireline systems. Nevertheless, it is probable that certain parts of local telephony will remain naturally monopolistic. In these cases the local exchange carrier must be permitted to sell necessary inputs to its competitors in the market for final telecommunications products at a price that reflects all its costs, including opportunity costs. This essay explains in nontechnical terms the derivation and logic of the efficient component-pricing rule, or ECPR. The authors' analysis applies to any network industry. Thus, it is useful in antitrust analysis of essential facilities and in regulatory analysis of transportation, energy transmission, pipelines, and mail delivery.

The Pricing of Inputs Sold to Competitors: A Comment

Abstract: With the progressive introduction of competition into the traditional public utility industries, it becomes necessary for regulators to ensure access of competitors to the bottleneck facilities controlled by the incumbent monopolists on terms consistent with efficient competition. Efficient component pricing correctly solves that problem: under its rules, competition is enabled to achieve first-order, technical efficiency. The rule is also consistent with allowing competition to promote dynamic efficiency, although achieving this goal also requires reforming traditional cost-plus regulation. The Baumol and Sidak rule does not in itself, however, permit competition to fulfill its other functions of eroding monopoly profits and promoting allocative efficiency. It can therefore be permitted only when the charges for the essential inputs are regulated, so as to ensure that any markups above marginal costs in those charges are no greater than is necessary to afford the challenged utility companies a fair opportunity to earn a return on their invested capital.

Property Rights to Investment Research: The Agency Costs of Soft Dollar Brokerage

Abstract: Securities regulators and policy commentators have questioned so-called \"soft dollar\" arrangements, in which fund managers promise portfolio trades to participating brokers in exchange for investment research. Johnsen examines the money management and brokerage industries,focusing on the agency costs associated with soft dollar arrangements. While many argue that soft dollar brokerage leads to the unjust enrichment of fund managers at the expense of fund beneficiaries, Johnsen concludes that soft dollars are efficient. He describes them as a vehicle that allows managers and brokers to align incentives and thereby reduce agency costs to the benefit of fund investors. Thus, this Article provides a counterpoint to the current support for either increased regulation or outright prohibition of soft dollar arrangements.

Cross-Subsidies in Telecommunications: Roadblocks on the Road to More Intelligent Telephone Pricing

Abstract: A decade ago, Alfred Kahn challenged regulators to adopt more efficient telephone pricing policies. They have yet to respond and instead have maintained a system of inefficient cross-subsidies. While some argue that the current system promotes universal telephone service, a careful examination reveals that the cross-subsidies do not further that goal. Professors Kaserman and Mayo argue that regulators maintain the current system because they believe that its pattern of cross-subsidization benefits a politically influential class-local residential customers. Kaserman and Mayo contend, however, that the regulators are wrong. the benefits from the current cross-subsidies are so diffused that abolishing them will not ultimately affect individual customers.

A Review and Analysis of Electric Utility Conservation Incentives

Abstract: ** Member, University of California Energy Institute Professor of Economics, University of California, Berkeley BS, Cornell University, 1966; PhD, Economics, Stanford University, 1976 The authors express their appreciation to the Universitywide Energy Institute for the group's support of this work Additionally, the authors are grateful to Arzou Ahsan, Haru Connolly, David Howe, Matthew Nagler, Chudozie Okongwu and Clara Wang for excellent research assistance, and to Tracy Lewis, Michael Riordan and Carl Blumstein for helpful comments A Review and Analysis of Electric Utility Conservation Incentives

The Pricing of Inputs Sold to Competitors: A Response

Abstract: William J. Baumol and J. Gregory Sidak propose that firms controlling competitive access sell those inputs to their competitors at prices that reflect (1) direct per unit incremental cost plus (2) the opportunity cost to the input supplier of the sale of a unit of input. The purpose of this Response is to question the authors' claims of general applicability for their theory. Rules for pricing competitive access must follow from the broad vision of the appropriate regulatory transition to deregulation and not vice versa. Different regulatory regimes and different factual circumstances will produce different rules governing competitive access, including the rules for pricing access.

Negotiating NIMBYs: Learning from the Failure of the Massachusetts Siting Law

Abstract: Citizens benefit from essential infrastructure like hazardous waste disposal facilities, but they do not want such facilities to be located in their own neighborhood. Local zoning allows communities to keep waste facilities out; as a result, siting them has proven increasingly difficult. Due to the continued need for such infrastructure, states have tried, often unsuccessfully, to combat NIMB Yism through preemption of local zoning. In 1981, Massachusetts adopted a siting law designed to use negotiated compensation as a means to overcome the NIMBY phenomenon. Private developers were to bargain freely with communities to establish terms for accepting a facility. The law's subsequent failure to lead to any new disposal sites does not disqualify negotiation as a realistic means of solving or alleviating NIMBYism. In fact, the law's ten year history provides vital insight into the obstacles that prevent parties from successfully negotiating their way around NIMBYism. Wheeler argues that, suitably reformed, the Massachusetts law offers a model way forward for planners and policymakers.

Environmental Racism, Site Cleanup and Inner City Jobs: Indiana's Urban In-fill Incentives

Abstract: In the last two decades, manufacturers have moved away from the inner city, taking valuable job opportunities and leaving behind environmentally hazardous sites. These sites are expensive to clean up when abandoned, and the lenders may be held liable as a last resort. This situation has created a large disincentive for remediating these sites, preventing poor inner-city communities from realizing meaningful economic opportunities. Mr. O'Reilly contends that current federal remediation procedures fraught with uncertainty and high cost are the primary cause of this barrier to inner-city economic rejuvenation. In a \"report from the field,\" Mr. O'Reilly examines Indiana's most recent effort to overcome this barrier and facilitate inner-city site cleanup. This unique Indiana program allows developers and manufacturers, through voluntary remediation agreements, to clean up potentially productive inner-city sites without the specter of liability. Mr. O'Reilly concludes that Indiana's program is necessary for renewed inner-city job growth and should serve as a model for the rest of the country.

The Imperative to Warn: Disentangling the "Right to Know" from the "Need to Know" about Consumer Product Hazards

Abstract: statistical information is much less compelling than concrete information.\" (footnote omitted)). 364. See supra notes 67 & 135 and accompanying text. In the case of the 4-MMPD warning, FDA explained that there is \"no reason to expect that consumers will interpret a warning that concerns the nature of the risk and that is phrased in general terms ... as conveying information on the size of the risk in absolute terms or in comparison to other risks.\" 44 Fed. Reg. 59,509, 59,516 (1979) (\"Warning labels-including those for cigarettes and saccharin-simply do not purport to provide, and are not understood by the public as providing, that kind of information.\"). 365. See supra note 54 and accompanyingtext. 366. See supra notes 36-37 and accompanying text. 367. See Yesley, supra note 363, at 316. 368. The NAS has emphasized that \"[d]ata gaps and areas of significant disagreement among experts should be disclosed\" when communicating risk information. NAS, IMPROVING RISK COMMUNICATION 170 (1989). \"One pitfall is that of equating clarity with brevity. The message preparer's goal should not be to gloss over the complexity and uncertainty of a risk but to reflect those qualities in plain language.\" Id. at 167. The Yale Journal on Regulation Vol. 11:293, 1994 or to point out that the relationship between adverse animal findings and human consequences has not yet been determined. ' 369 [I]ncluding the best available information on the degree of scientific certainty about a possible hazard, its frequency, severity, and other related information .... [provides] clear and unambiguous information of use to the medical profession in making benefit-risk decisions on drug prescribing.370 Package inserts provide detailed scientific information about a drug's clinical pharmacology, adverse reaction profile, and the results of animal toxicology and in vitro mutagenicity assays, among other items. As explained in Subpart D, consumers may find it very difficult to make sense of such information. In proposing to require PPIs, FDA recognized that many of the scientific concepts discussed in the package insert, no matter how simply written, \"are difficult to convey to persons who lack professional training or experience in the use of prescription drug products. '371' Anticipated problems with comprehension by lay persons did not, however, deter FDA from proposing to require comprehensive though somewhat simplified PPIs based on the information contained in the package insert, and the PPIs would have included detailed information about carcinogenicity and mutagenicity.372 By contrast, the proposed warnings for cosmetics containing 4-MMPD and OTC drug products containing doxylamine inappropriately gloss over precisely such information. If consumers are given the task of making their own risk-benefit calculations for potential carcinogens, they should also be provided with as much accurate information as possible. 369. 39 Fed. Reg. 33,229, 33,232 (1974). FDA does not allow any \"statement of differences of opinion with respect to warnings (including contraindications, precautions, adverse reactions, and other information relating to possible product hazards) required in labeling for food, drugs, devices, or cosmetics under the act.\" 21 C.F.R. § 1.21(c)(1) (1993). (Similarly, CPSC prohibits the use of disclaimers to accompany warnings on the labels of hazardous substances. 16 C.F.R. § 1500.122 (1993).) Unless FDA itself has prescribed cautionary statements that reflect the degree of uncertainty underlying a risk estimate, manufacturers are prohibited from conveying such information because it may undermine the warnings mandated by the agency. 39 Fed. Reg. at 33,232 (\"[T]here is no basis to permit warnings to be discounted by an opinion that the warning is really not necessary at all .... [A] warning must be unencumbered and unambiguous.\"). FDA concludedthat \"where warnings are required, disclamatory opinions necessarily detract from the warning in such a manner as to be confusing and misleading.\" Id.; see also 40 Fed. Reg. 28,582, 28,583 (1975) (\"[W]arnings about possible hazards associated with the use of a drug must, to be effective, remain undiluted by expressions of opinion discounting the risk.\"). 370. 40 Fed. Reg. 28,582, 28,584 (1975). 371. 44 Fed. Reg. 40,016, 40,026 (1979). In fact, some patients may consult professional labeling reprinted in the PDR and, although some of the terminology may be unfamiliar, they can glean basic risk information from it. 372. 44 Fed. Reg. 40,016, 40,026-27, 40,029 (1979). In addition, as more prescription drugs are switched to OTC status, labeling will become increasingly detailed. See Peter Barton Hutt, A Legal Framework for Future Decisions on Transferring Drugs from Prescription to Nonprescription Status, 37 FOOD DRUG COSM. L.J. 427, 438 (1982).

Conceptualizing, Estimating, and Reforming Fraud, Waste, and Abuse in Healthcare Spending

Abstract: The elimination of \"waste, fraud, and abuse \"from American medicine is not a quick or easy solution to the challenge of rising medical care costs. Although there are clearly some savings available, particularly in the area of administration, they likely amount to far less than many policymakers hope. Many of the policy options available for reducing excesses face significant political hurdles or involve value judgments about non-quantifiable issues involving quality of care. Other alternatives seem as likely to bar necessary medical care as to eliminate abuses. In some instances, particularly those involving consumer fraud, a crackdown may merely shift costs without saving any money. Finally, a number of the suggestions for trimming waste and abuse involve ethical and moral judgments that Americans have yet to acknowledge and, in any event, may not wish to sign over to the government or any other third party.

Regulation of drug treatments for HIV and AIDS: a contractarian model of access.

Abstract: The HIV/AIDS epidemic has provoked a reexamination of U.S. drug testing and approval policies. The traditionally conservativeposture of the Food and Drug Administration (FDA) has resulted in the development of a highly protective and lengthy drug approval process that denies consumers early access to experimental drugs. While this paternalistic approval process may be warranted in most cases, it can deprive HIV/AIDS patients and others suffering from similarly -life-threatening diseases of their only hope for effective treatment. Professor Salbu examines the shortcomings of both the paternalistic model employed by the FDA and the open access model proposed by AIDS activists in light of the conflicting interests of the individual, the pharmaceutical industry, and the state. Professor Salbu offers a contractarian model that would limit government intrusion and allow individuals to assume the risk of taking untested but potentially promising drugs. This article recommends a specific policy that recognizes the primacy of individual autonomy while protecting the more limited interests of both industry and the state.

A Citizen's Guide to the Healthcare Reform Debate

Abstract: Sources of Confusion: Cant, Hyperbole, and Misrepresentation ...... 496 A. The Need for Reform: What Kind of Healthcare Problems Does the Nation Face, Anyway? .................... 497 B. False Dichotomies: Regulation vs. Competition .......... 498 C. Misreading History ............................. 500 D. Another Dichotomy That Misleads: Radical vs. Conservative Reform Plans ................................. 501 E. The Failure to Learn from Others ................... 502 F. Failing to Learn from Our Own Experience ............ 504 G. Imbalanced Choices ............................. 505