Regulation Reform In Public Utility-Franchise

The city public utility has been a monopolistic industry as a social welfare for its characteristics as economy of scale, economics of scope and the capital use for special purpose.The traditonal regulation theory regards that the monopoly market-structure in natural monopoly industry is more efficient.But in the structure of monopoly, the monopolist may abuse the power of monopoly and make the decision that is benifical to the maxism of its own profit but harmful to the social welfare.Therefore,to promote public interests and social welfare,the government regulation is necessary. With time went on,the drawback of the traditional government regulation appeared,which is called regulation failure.The regulation failure brings the low regulaiton efficiency. It shows in the following aspects such as the low efficiency in the monopolistic enterprise,the high regulation relative cost,the discretionary power of regulator, and the loss of enterprises by regulation delay.The appearance and development of theory of incentive regulation set the foundation for regulation reform.The mechanism of franchise is one attractive method for dealing with the issue of natural monopoly. The auction mechanism will promote the efficiency of the enterprise and relieve the government.The theory of franchise take into consideration the symmetrical information distribution between the govenmetn and the enterprises. The mechanism is regarded as a effective mean for the optimizing the resource distribution.The main content of the paper is as follows:it first elaborate the development of the theory of natural monopoly and regulation as well as the theory of incentive regulation.Then the paper analyses the phemomenon"regulation failure" and regard the mechanism of franchise is applicable in the city public utility.thirdly,the paper introduce the history of the development of public utility and the application of franchise in such industry.Finally the paper discuss the several issues in the practice of franchise such as quality regulation and commitment and so on with details.