BOOK REVIEWS 375 between production and distribution. Thus, Dr. Kwoka’s ﬁnding that considerable vertical economies exist in the industry is signiﬁcant. As noted, however, there appears to be a bias in his estimate. But beyond that, de-integration of the industry does not necessarily mean that vertical economies will be lost. The author notes ways to preserve these economies through the use of independent system operators or power pools. Dr. Kwoka’s other chief ﬁnding, that publicly-owned distribution systems tend to be especially efﬁcient, prompts interesting policy questions. Logically, the con- clusion is that the optimal system performance may be best achieved through a public takeover of distribution. This may not be politically feasible in many sit- uations. However, the success of publicly-owned systems apparently lies in the ability of the regulators to monitor closely managerial operations, thus providing the regulator with good information on the system’s operating cost and investment requirements. If public takeovers are not desirable for political reasons, a second- best policy would be to reduce the size of distribution systems, making the ﬂow of managerial information easier for regulators to handle and regulation more effec- tive. This has important implications for merger policy since the consolidation now
Review of Industrial Organization – Springer Journals
Published: Oct 6, 2004
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