The postal service: Economics made simplistic

The so-called Inverse Elasticity Rule has almost the unanimous support of economists when they prescribe how a regulated firm should price the various products or services it offers. The U.S. Postal Service relied heavily on this rule and its endorsement by professional economists in pricing its various postal services. But the policy produced results of doubtful social value, and a series of court decisions eventually struck it down. This experience illustrates the dangers of narrowly applying the principles of economic theory, as well as the risks of ignoring practical problems of implementation.