Contributions of Neoclassical Economics to Public Utili ' Iy Analysis

Neoclassical economics, the dominant economics paradigm, has influenced and been influenced by developments in regulated industries. We identify major theoretical and empirical accomplishments, discuss the impact ofthese accomplishments onpolicy development, and list the channels through which the impacts are madepossible. We then discuss regulatorypolitics, lack ofresearch perspective, an overly narrow focus on economic efficiency, and the academic profession as factors limiting the impact of neoclassical economics on public policy. *Florida Public Utilities Professor (University of Florida) and Professor of Economics (University of Wyoming). Support for this research from the Public Utility Research Center and the Public Utility Research and Training Institute is gratefully acknowledged. The views expressed herein are not necessarily those of sponsoring organizations. Helpful comments on earlier versions of this article by Douglas Gegax, David Sappington, Harry Trebing and Dennis Weisman are gratefully acknowledged. Mailing addresses: Professor Sanford V. Berg Department of Economics University of Florida Gainesville, Florida 32611 (904) 392-0132 Professor John Tschirhart Department of Economics University of Wyoming Laramie, Wyoming 82071 (307) 766-2356 Forthcoming, Land Economics, 1995. CONTRIBUTIONS OF NEOCLASSICAL ECONOMICS TO PUBLIC UTILIlY ANALYSIS by Sanford V. Berg and John Tschirhart