Coase and the regulation of public utilities

Coase, in his writings on public utilities, proved very sceptical about government intervention, for instance the creation of state monopolies or the regulation3 of prices of postal services, and demonstrated a conviction that ‘the normal economic system works itself ’ (Coase 1937: 392). In 1930 this was brought home to junior student Ronald Coase by his London School of Economics professor Arnold Plant. Coase wrote: ‘Plant also explained that governments often served special interests, promoted monopoly rather than competition, and commonly imposed regulations which made matters worse’ (Coase 1988 [1991]: 37). In this chapter we explore how Coase analysed the working of the real economy of public utilities. We will demonstrate how Coase investigated the way regulators intervened (he warned against regulatory risk and regulatory capture), how the rationales to create state monopolies changed over time, how market actors constantly disturb the state interventions through their innovations and finally what, according to Coase, were the effects of regulation on the performance of the public utilities.