State regulation and the incentive for exceptional managerial performance in investor-owned public utilities

Abstract

Signature was redacted for privacy.Signature was redacted for privacy.Signature was redacted for privacy. ii 13 35 48 59 113 127 .137 138 145 149 152 156 165 I 1 2 mother country. They were forced to trade with England on English ships; I they were relegated to being primarily a source of raw materials, for England forbade the importing of machinery into the colonies; and the tax policies seemed designed only to enrich the English treasury.Because the drives for economic freedom and for political Independence were reactions against mercantilism and because both occurred at the same time, a prejudice against control over business by any government influenced the framers of the American Constitution and colored the character of early American business morality. (61, p. 8) Adam Smith and "Self Regulation"The same year that the American Colonies declared their independence, 1776, Adam Smith published his Wealth of Nations. Adam Smith believed that there were forces working within the market which would make all business self-regulating. The market would therefore be its own guardian. This "self-regulation" was assured by allowing each individual to be guided in his business actions by his own self interests and passions.Rather than destroy the market, this freedom would result in competition within the market which in turn would bring about results "which would be most agreeable to the interest of the whole society" (49, p. 39). Under competition all market prices would tend to equal their natural price, that price which would properly compensate each of the factors of produc tion and assure continued production without providing an excess payment to any one factor. The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continu ally gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force 3 them down even somewhat below It. But whatever may be the obstacles which hinder them from settling in this center of repose and continuance, they are constantly tending towards it. (105, p. 102) Public UtilitiesThe world of Adam Smith has been referred to as one of I competition" (49). The market since that time has changed. market today is still influenced by competitive conditions, characterized by the huge size of some of its participants. . , . giant corporations and equally giant labor unions obviously do not behave as if they were individual proprietors and workers. Their very bulk enables them to stand out against the pressures of competition, to disregard price signals, and to consider what their self-interest shall be in the long run rather than in the immediate press of each day's buying and Sellings (49, p. 43) An additional influence upon the market mechanism has been the growth of governmental intervention, including the classification of certain industries as "natural monopolies" and as industries which are "affected with the public interest." Gas, electric, and telephone utilities Three industries conceived in t...