The Nature of the Public Utility: Infrastructure, the Market, and the Law

93 Pages Posted: 31 Oct 2006

See all articles by James Ming Chen

James Ming Chen

Michigan State University - College of Law


In Regulating Infrastructure: Monopoly, Contracts, and Discretion (2003), Jose Gomez-Ibanez synthesizes the economics of the firm with the law of regulated industries. Professor Gomez-Ibanez aregues that legal regimes designed to promote the provision of infrastructure should systematically move away from the regulation of entry, exit, prices, and terms of service and move instead toward contractual arrangements that bind providers of infrastructure to their customers or with governments.

This theoretically attractive thesis falls tantalizingly short of setting a workable regulatory agenda. Far from being a regulatory panacea, government-based contracting arguably represents the least attractive means of transforming the provision of infrastructure from a publicly regulated affair into a presumptively private domain. Air and surface transportation in the United States are governed principally by the antitrust laws, as supplemented by modest amounts of conventional regulation. The path toward rationalized electricity and telecommunications markets lies in carefully targeted, market-based reforms of conventional regulation.

Perhaps paradoxically, deregulation increases rather than decreases the premium on creative regulatory solutions. The extensive deregulatory agenda for electricity and telecommunications includes rules for ensuring interconnection with and unbundled access to legacy networks, financing universal service, and managing the transition from conventional cost-of-service regulation to market-based alternatives.

These goals demand two tasks of discretionary regulators. First, regulators must maintain competitive neutrality, both as between technological platforms and as between service providers. Second, regulators must remain mindful that dismantling a monopoly can raise the cost of coordinating transactions between competing firms. The greatest regulatory gains rest in simple rules designed to overcome the deregulatory paradox of overwhelming legal complexity.

Keywords: infrastructure, public utility, regulation, regulated industries, contracts, transportation, electricity, telecommunications, network, neutrality, universal service

Suggested Citation

Chen, James Ming, The Nature of the Public Utility: Infrastructure, the Market, and the Law. Northwestern University Law Review, Vol. 98, p. 1617, 2004; Minnesota Legal Studies Research Paper No. 06-60. Available at SSRN:

James Ming Chen (Contact Author)

Michigan State University - College of Law ( email )

318 Law College Building
East Lansing, MI 48824-1300
United States

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