Why Regulate Utilities?

The New Institutional Economics and the Chicago Gas Industry, 1849-1924
Werner Troesken
A coherent argument in favor of regulating utilities


Why Regulate Utilities? informs and revises economic thought about regulation and regulatory change. Showing that state regulation governed the behavior of local politicians as well as utilities, it gives empirical muscle to the idea that regulatory commissions act like administered contracts. Synthesizing and extending the new institutional economics, it builds a comprehensive model of institutional change and political economy. A history book, Why Regulate Utilities? promotes sensitivity to a relevant past. Highlighting institutional arrangements once hidden by the shadows of the past, it demonstrates how utility markets operated in the years before state regulation. Emphasizing the importance of historical context, Werner Troesken suggests that producer support for a particular law or regulation need not imply that the law or regulation is inefficient or contrary to the public interest.

Using the late-nineteenth- and early-twentieth-century Chicago gas industry as a case in point, Troesken argues that large and irrevocable investments pervaded the gas industry. These investments created an economic prison that bound consumers, local politicians, and producers. If producers did not like the regulations established by local politicians, they were stuck; similarly, if Chicagoans did not like gas rates and service, they could not solicit the services of other producers without incurring huge costs. A battle was bound to ensue: consumers demanded relief from exorbitant rates; politicians launched antitrust suits and passed rate ordinances; producers appealed to the state legislature and the courts for relief. Ultimately Illinois created a state commission to regulate Chicago gas companies, moving the battle out of the legislature and courts and relieving them of these costly, time-consuming battles.

Werner Troesken is Assistant Professor of History and Economics, University of Pittsburgh.

Praise / Awards

  • "A fascinating, brief industry (or market) study that emphasizes the usefulness, nay necessity, of marshaling facts, and serves as a reminder that "alternative" explanations of economic phenomena may be complementary rather than mutually exclusive."
    —R.A. Miller, Choice
  • ". . . a rich account of the institutional details surrounding the development of the gas industry in Chicago and the corresponding development of public utility regulation. . . . [T]he wealth of interesting anecdotes alone made the book worth reading."
    Public Choice
  • ". . . informative and worth reading. While it is not likely to change the minds of many members of the various schools of thought on the nature of regulation, it provides some useful synthesis and highlights issues that require careful thought regardless of one's predisposition. The book also presents a compact historical perspective on the development of the gas industry and its regulation, something which is valuable in its own right."
    Public Choice

Product Details

  • 6 x 9.
  • 152pp.
  • 10 illustrations.
Available for sale worldwide

  • Hardcover
  • 1996
  • Available
  • 978-0-472-10739-1

Add to Cart
  • $84.95 U.S.