Regulation and Administered Contracts Revisited: Lessons from Transaction-Cost Economics for Public Utility Regulation 1

This article reexamines the administered contracts approach to regulation in light of recent empirical research that establishes the importance of transaction-costs in the organizational choice and design decisions. After reviewing the fundamentals of transaction cost reasoning and the franchise bidding-versus-regulation debate, the study surveys the empirical literature on franchise bidding, contracting, and vertical integration. The implications of transaction-cost theories for current policies toward pubic utility regulation and deregulation are also addressed.