The applied theory of regulation: Political economy at the Interstate Commerce Commission

Abstract

Economists are seldom privileged to be active participants in bodies vested with jurisdiction in economic regulation. These collegial forums are traditionally the provinces of lawyers and former members and staff of legislatures. The selection in 1977 of Alfred Kahn, a noted and respected specialist in industrial and public utility economics, to head the Civil Aeronautics Board opened a crack in the regulatory agency appointments door through which later passed Elizabeth Bailey (CAB), Darius Gaskins (Interstate Commerce Commission (ICC)), and this writer (ICC).1 Service on the ICC has presented me with an unusual, though not unique, experience as an economist to see firsthand the internal operations of the procedural, analytical and decision-making structures of the nation's oldest Federal regulatory commission. This paper is an attempt to organize that experience into a coherent framework for purposes of commenting and elaborating on the now vast literature which purports to illuminate the motive forces that propel the ICC and other regulatory machines. I first present a brief history of the conditions leading to the passage of the 1887 Interstate Commerce Act and to the 1935 amendment which brought interstate trucking under ICC regulation. Next, I discuss the "received doctrine" on economic regulation in general and surface transportation in particular. This is followed by a "case history" of regulatory change in the trucking industry. I conclude with a restatement and generalization of the current explanations (theories) of the workings of regulatory processes.