Regulation and the Free Market: The Problem of Boundaries

The problem of setting appropriate limits to the direct regulation of public utilities is the subject of this article. The problem concerns both the internal and external relationships of the public utility enterprise. Regulation cannot control all of the decisions and internal relationships of the public utility. Regulatory bodies therefore must economize the means and limit the scope of regulation; but they encounter considerable difficulty doing so, because the regulated decisions affect the unregulated ones and the ultimate reactions may escape control.