In recent years there has been much debate within the United States on the regulation of public utilities. This debate has been coincident with a burgeoning of interest on the part of professional economists in public utility pricing issues and in the theory of regulation. The purpose of this book is to show how some of the recent advances in the theory pertain to the policy discussion. We hope that by making these advances accessible to policy makers we may foster a mutually beneficial interchange between economists, regulators and the public utilities.

Our interest in this area dates back to the mid 70's and was actively supported and encouraged by Elizabeth Bailey, Gerald Faulhaber and Edward Zajac who were responsible for the economics research activity at Bell Laboratories. We owe a debt of gratitude to our present and past colleagues at AT& T Bell Laboratories and Bell Communications Research for stimulating discussions on the subject matter of this book. Our debt to Peter Linhart, Patrick Marfisi, John Panzar, Jeffrey Rohlfs, William Sharkey and Robert Willig is particularly strong. We have benefitted not only from their research results, but from conversations extending back a period of years. Panzar, Sharkey, Leonard Mirman, Peter Grandstaff, David Mandy and Donald Brown also provided us with detailed comments on portions of the book. We would also like to acknowledge helpful conversations and feedback from Stanley Winkler, Roger Noll, and David Sappington. Finally, we acknowledge a particular debt of gratitude to Ms. Geraldine Moore who set the type for this book.