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unemployment, if funds are borrowed from abroad, if the
borrowing is for productive investments complementary
to private investment, if private savings rise to offset gov-
ernment borrowing, or as noted by Benjamin M.
Friedman (1978), if the borrowing uses short-term bonds
that substitute for money, government borrowing can
result in “crowding in” or a stimulus to private invest-
ment. Many economists think that optimally government
should borrow money only for productive investments,
including enhancements to human capital, and use cur-
rent revenues for its collective consumption, such as mili-
tary operations.
The size of the public sector can be measured by the
total amount of spending, the share of GDP, workers
employed, and public sector assets and liabilities. The
U.S. federal government spent $2.5 trillion in 2005, 20
percent of GDP. State and local governments spent from
their own sources $1.4 trillion, 11 percent of GDP. The
relative size of government for the members of the
Organization for Economic Cooperation and
Development with developed economies grew from 27
percent in 1960 to 48 percent in 1996. Government out-
lays as a percentage of GDP in 1996 were 44 percent in
the United Kingdom, and Denmark was the highest at 61
percent.
MACROECONOMIC ACTIVITY AND
INTERNATIONAL TRADE
A large public sector can increase the trade deficit to the
extent that taxation makes exports more expensive and to
the extent that government spends its funds abroad, as in
the case of a war. Governments mostly affect international
trade with tariffs and restrictions, such as quotas, and with
policies that affect foreign-currency exchange rates.
LABOR AND THE ENVIRONMENT
In most developed economies, public sector labor is about
15 percent of employment. Several studies have con-
cluded that workers in the public sector tend to be better
paid than those in the private sector. Government work-
ers typically are under a civil service system by which it is
difficult to fire an unproductive worker. A more funda-
mental element of the cost of labor in the public sector is
Baumol’s cost disease, put forth by William J. Baumol and
William G. Bowen (1966), who argued that productivity
in services such as an orchestra or education has changed
little compared to that in manufacturing, which explains
the increase in relative costs in the service-intensive public
sector.
With global warming recognized as an urgent issue,
people increasingly seek remedies in government policy.
The taxation of pollution is more efficient than regula-
tions, as the former permits firms and households to
adjust according to their individual costs and benefits.
Pollution permits that trade in a market are also used to
increase the cost to business of polluting more.
Environmentalists have proposed a “green tax shift” that
increases pollution charges while reducing taxes that have
an excess burden, a policy that would minimize the eco-
nomic costs of reducing pollution.
Advancing technology has meanwhile reduced the
rationale for some large-scale government involvement, as
knowledge becomes more easily accessible and the private
sector becomes more capable of providing infrastructure,
such as tolled highways and decentralized utilities.
Nevertheless, conflict tends to expand the public sector, so
the future role of the public sector depends on the inter-
play of advancing technology, threats to security and the
environment, and the influence of theoretical knowledge
and real-world experience in shaping public opinion.
SEE ALSO Capitalism; Economics, Public; Government;
Planning; Policy, Fiscal; Policy, Monetary; Private
Sector; Public Choice; Public Goods; Public Utilities;
Socialism; State Enterprise; Taxes
B I B L I O G R A P H Y
Baumol, William J., and William G. Bowen. 1966. Performing
Arts: The Economic Dilemma. New York: Twentieth Century
Fund.
Edwards, Chris. 2005. Downsizing the Federal Government.
Washington, DC: Cato Institute.
Friedman, Benjamin M. 1978. Crowding Out or Crowding In?
Economic Consequences of Financing Government Deficits.
Brookings Papers on Economic Activity 1978 (3): 593–641.
Gwartney, James, Randall Holcombe, and Robert Lawson. 1998.
The Size and Functions of Government and Economic Growth.
Washington, DC: Joint Economic Committee Study.
Harrison, Fred, ed. 1998. The Losses of Nations: Deadweight
Politics versus Public Rent Dividends. London: Othila.
Papadimitriou, Dimitri, ed. 2006. The Distributional Effects of
Government Spending and Taxation. New York: Palgrave
Macmillan.
Fred Foldvary
PUBLIC SPHERE
Discourse on the public sphere derives from the work of
the German social theorist Jürgen Habermas, particularly
with his first major work, The Structural Transformation of
the Public Sphere, which first appeared in Germany in
1962, and in what some consider to be his magnum opus,
The Theory of Communicative Action (1981). In these and
other works, Habermas has been concerned with explicat-
ing the historical and social structural factors that have
INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION 623
Public Sphere
served to inhibit or advance democracy. Given the central-
ity of free and open dialogue for the functioning of democ-
racy, of particular concern to Habermas is identifying where
such discussions take place and under what conditions. His
guiding question has been: Where is the space in which
democracy is nurtured? Habermas refers to this space as the
public sphere, a term related to civil society, which refers to a
realm of social life distinct from both the state and the mar-
ket, where participation in public life occurs with a spirit of
cooperation and a norm of reciprocity. Seen in this light,
Habermas construes the public sphere as a space within
civil society. By claiming that a prerequisite of a democratic
polity is an autonomous public sphere, Habermas can be
seen as building on the work of Max Weber (1864–1920)
and Seymour Martin Lipset (1922–2006) in attempting to
identify the most important social structural conditions
underpinning democratic societies.
What Habermas refers to as the “bourgeois public
sphere” came into its own in the nineteenth century, most
fully in Britain, as a result of the triumph of capitalism
and the establishment of a laissez-faire state. In contrast to
the feudal era, in which the economy and polity were inti-
mately linked, in the earliest phase of the capitalist indus-
trial era this linkage was uncoupled. The public sphere can
be visualized as being carved out between the economy
and the state, being separate and distinct from them. It is
an arena that is accessible to all citizens on the basis of
equality and thus is not dominated or controlled by pow-
erful economic actors or by state officials. His perspective
on this sphere has been depicted as a theater where polit-
ical discourse occurs.
The public sphere requires the existence of indepen-
dent voluntary associations of citizens and an institu-
tionalized apparatus that permits the unrestricted dissem-
ination of information and ideas. Thus the panoply of
organizations—ranging from local parent-teacher associa-
tions and neighborhood clubs to labor unions, human
rights organizations, environmental organizations, and so
on—is part and parcel of this arena. In addition, so are
media committed to ensuring that citizens are informed
about the vital issues of the day and to providing outlets
for articulating an array of stances on issues and forums
for debate and dissent.
Critics of Habermas contend that he tends to roman-
ticize the public sphere during its earlier years, confusing
his ideal vision about how it should have functioned with
the reality of the historical situation, which involved from
its inception persistent intrusions of powerful economic
interests and the repressive tactics of the state. The result
was that the public sphere never managed to be as
autonomous as he seems to think. This may be a some-
what unfair characterization of Habermas’s position
because he provides ample evidence of being aware of the
limitations of actual existing public spheres in the past. He
does think, however, that public spheres in the past exhib-
ited greater autonomy than their contemporary versions.
At the same time Habermas leaves himself open to
charges of utopian thinking, especially when he develops
the ideal of a state of undistorted communication, free
from coercion and restraint. In his view, democratic deci-
sions arise dialogically. In an ideal speech situation, people
talk to others to come to an understanding of which ideas
and values are best, not to manipulate others to get one’s
way. In other words, he assumes a willingness on the part
of citizens to freely embrace the better argument. There
are examples of situations in which this ideal seems to
have been more or less realized, such as old New England
town meetings and Quaker meetings. The participants in
these examples can be fairly depicted as being cooperative,
tolerant, critical, self-reflective, and rational, whereas the
differences among them in terms of both economic status
and levels of human capital are not great.
Two other criticisms have been leveled at Habermas’s
portrait of the public sphere. First, some feminists con-
tend that he is insufficiently attentive to the relationship
between the private and public spheres and its implication
for gender relations. Second, he has been accused of oper-
ating with an overly rationalistic and overly civilized view
of human nature.
Habermas has expressed concern that the public
sphere in what he describes as “late capitalism” is threat-
ened by what he calls “refeudalization.” What he refers to
is the tendency to link or integrate the economy and the
polity in a way quite at odds with their separation in the
earlier period of capitalist development. Given his focus
on communication, it is not surprising that he is particu-
larly apprehensive about the concentration of media
power in the hands of political and economic elites. Large
media conglomerates have arisen to choke dissident voices
out of the market, and these corporations, far from being
independent of political power, serve as apologists for it.
The result is that genuine public debate has given way
to propaganda and increasingly sophisticated public
relations.
Although the portrait he paints might lead to despair
regarding the future of democracy, Habermas presents a
cautious optimism. In particular he sees in the new social
movements—environmental, antinuclear, peace, feminist,
and so forth—potential for change. These movements
have abandoned any belief in the possibility of revolution-
ary change, opting instead for radical reforms and a com-
mitment to nonviolent change. Underlying his tempered
hope for the future is a particular understanding of human
nature. It presupposes that people are by nature political
and thus concerned about and willing to participate in
issues related to the well-being of society as a whole.
Public Sphere
624 INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION
SEE ALSO Associations, Voluntary; Civil Society;
Feminism; Government; Habermas, Jürgen;
Persuasion; Public Sector; Rationality; Utopianism;
Volunteerism; Weber, Max
B I B L I O G R A P H Y
Calhoun, Craig, ed. 1992. Habermas and the Public Sphere.
Cambridge, MA: MIT Press.
Habermas, Jürgen. [1962] 1989. The Structural Transformation
of the Public Sphere: An Inquiry into a Category of Bourgeois
Society. Trans. Thomas Burger. Cambridge, MA: MIT Press.
Habermas, Jürgen. 1979. Communication and the Evolution of
Society. Trans. Thomas McCarthy. Boston: Beacon.
Habermas, Jürgen. [1981] 1984–1987. The Theory of
Communicative Action. 2 vols. Trans. Thomas McCarthy.
Boston: Beacon.
Habermas, Jürgen. 1996. Between Facts and Norms:
Contributions to a Discourse Theory of Law and Democracy.
Trans. William Rehg. Cambridge, MA: MIT Press.
Zaret, David. 2000. Origins of Democratic Culture: Printing,
Petitions, and the Public Sphere in Early-Modern England.
Princeton, NJ: Princeton University Press.
Peter Kivisto
PUBLIC UTILITIES
Public utilities are firms that are sometimes synonymous
with natural monopolies. Some examples of public utili-
ties include the Tennessee Valley Authority and Illinois
Power.
These organizations are generally so called because
there is structurally no room for market competition—
one firm can “naturally” produce at lower costs than com-
petitors who are eventually priced out of the market.
Thus, natural monopolies tend to be regulated by govern-
ments in the public interest. However, being a natural
monopoly is not a necessary prerequisite for government
regulation. Industries that are not natural monopolies
may be regulated for a number of reasons, including ser-
vice reliability, universal access, and national security.
Public utilities generally supply goods or services that
are essential, like water, electricity, telephone, and natural
gas. For example, the transmission lines for the trans-
portation of electricity or natural gas pipelines have natu-
ral monopoly characteristics in that once these lines are
laid by one utility, duplication of such effort by other
firms is wasteful. In other words, these industries are char-
acterized by economies of scale in production.
Left to themselves, private utility companies would
make decisions that are most profitable for them. Such
decisions generally involve too high prices and relatively
little service compared to competitive conditions. These
decisions may or may not be in the best interests of the
society. The government or the society would like to see
these services being economically accessible to all or most
of the population.
Not all utility companies are in the private sector. In
many countries, utilities are owned by the government.
Generally, in these cases, the government creates
autonomous bodies for government utilities to prevent
them from day-to-day political interference. In such
instances, the government utilities’ goals are better aligned
with societal goals; however, they tend to be less efficient
than their private sector counterparts.
Two main issues facing public utilities are coverage of
service area and pricing. Alternately stated, the regulators
try to balance the competing aims of economic efficiency
and social equity. Economic efficiency generally requires
that markets be left to work by themselves with little
intervention. Such instances are usually not equitable or
fair (some consumers might be priced out of the market).
Equity issues demand that everyone gets the service at a
“just” price. However, these instances can turn out to be
inefficient (think about the cost to an electric utility of
having to run cables a number of miles especially to serve
one or two remote fishing cabins that are used sparingly).
In general, the pricing of the services of public utili-
ties is problematic. As mentioned above most public util-
ities are structural monopolies, implying that there is no
room for competition in the market for services they pro-
vide. However, if they are left alone to price like monop-
olies, the resulting price is too high and a large part of the
market area may not be served. While the utility compa-
nies have no complaints about such arrangements, given
the essential nature of the services they provide, the soci-
ety would like to provide such services to all or most of the
population. Think, for instance, about the undesirability
of denying heat to someone in the winter. Hence, their
pricing actions are regulated.
However, these decisions are somewhat problematic.
If these utilities are mandated to set prices at the low com-
petitive levels, they generally end up making losses. So
there continues to be an ongoing tussle between regulators
and the utility companies regarding a “fair” price between
the monopoly and competitive levels.
Common alternate pricing actions include (1) setting
prices equal to average production costs and serving the
maximum area possible; (2) rate of return regulation; and
(3) price cap regulation. Under average cost pricing, the
utility is assured of breaking even, since the prices equal
average costs. The equity aspects are somewhat met since
most of the market is being served. However, the regu-
lated firm lacks incentives to minimize costs. Under rate
of return regulation, the regulators let the firms charge any
INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION 625
Public Utilities

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Esfera publica

  • 1. unemployment, if funds are borrowed from abroad, if the borrowing is for productive investments complementary to private investment, if private savings rise to offset gov- ernment borrowing, or as noted by Benjamin M. Friedman (1978), if the borrowing uses short-term bonds that substitute for money, government borrowing can result in “crowding in” or a stimulus to private invest- ment. Many economists think that optimally government should borrow money only for productive investments, including enhancements to human capital, and use cur- rent revenues for its collective consumption, such as mili- tary operations. The size of the public sector can be measured by the total amount of spending, the share of GDP, workers employed, and public sector assets and liabilities. The U.S. federal government spent $2.5 trillion in 2005, 20 percent of GDP. State and local governments spent from their own sources $1.4 trillion, 11 percent of GDP. The relative size of government for the members of the Organization for Economic Cooperation and Development with developed economies grew from 27 percent in 1960 to 48 percent in 1996. Government out- lays as a percentage of GDP in 1996 were 44 percent in the United Kingdom, and Denmark was the highest at 61 percent. MACROECONOMIC ACTIVITY AND INTERNATIONAL TRADE A large public sector can increase the trade deficit to the extent that taxation makes exports more expensive and to the extent that government spends its funds abroad, as in the case of a war. Governments mostly affect international trade with tariffs and restrictions, such as quotas, and with policies that affect foreign-currency exchange rates. LABOR AND THE ENVIRONMENT In most developed economies, public sector labor is about 15 percent of employment. Several studies have con- cluded that workers in the public sector tend to be better paid than those in the private sector. Government work- ers typically are under a civil service system by which it is difficult to fire an unproductive worker. A more funda- mental element of the cost of labor in the public sector is Baumol’s cost disease, put forth by William J. Baumol and William G. Bowen (1966), who argued that productivity in services such as an orchestra or education has changed little compared to that in manufacturing, which explains the increase in relative costs in the service-intensive public sector. With global warming recognized as an urgent issue, people increasingly seek remedies in government policy. The taxation of pollution is more efficient than regula- tions, as the former permits firms and households to adjust according to their individual costs and benefits. Pollution permits that trade in a market are also used to increase the cost to business of polluting more. Environmentalists have proposed a “green tax shift” that increases pollution charges while reducing taxes that have an excess burden, a policy that would minimize the eco- nomic costs of reducing pollution. Advancing technology has meanwhile reduced the rationale for some large-scale government involvement, as knowledge becomes more easily accessible and the private sector becomes more capable of providing infrastructure, such as tolled highways and decentralized utilities. Nevertheless, conflict tends to expand the public sector, so the future role of the public sector depends on the inter- play of advancing technology, threats to security and the environment, and the influence of theoretical knowledge and real-world experience in shaping public opinion. SEE ALSO Capitalism; Economics, Public; Government; Planning; Policy, Fiscal; Policy, Monetary; Private Sector; Public Choice; Public Goods; Public Utilities; Socialism; State Enterprise; Taxes B I B L I O G R A P H Y Baumol, William J., and William G. Bowen. 1966. Performing Arts: The Economic Dilemma. New York: Twentieth Century Fund. Edwards, Chris. 2005. Downsizing the Federal Government. Washington, DC: Cato Institute. Friedman, Benjamin M. 1978. Crowding Out or Crowding In? Economic Consequences of Financing Government Deficits. Brookings Papers on Economic Activity 1978 (3): 593–641. Gwartney, James, Randall Holcombe, and Robert Lawson. 1998. The Size and Functions of Government and Economic Growth. Washington, DC: Joint Economic Committee Study. Harrison, Fred, ed. 1998. The Losses of Nations: Deadweight Politics versus Public Rent Dividends. London: Othila. Papadimitriou, Dimitri, ed. 2006. The Distributional Effects of Government Spending and Taxation. New York: Palgrave Macmillan. Fred Foldvary PUBLIC SPHERE Discourse on the public sphere derives from the work of the German social theorist Jürgen Habermas, particularly with his first major work, The Structural Transformation of the Public Sphere, which first appeared in Germany in 1962, and in what some consider to be his magnum opus, The Theory of Communicative Action (1981). In these and other works, Habermas has been concerned with explicat- ing the historical and social structural factors that have INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION 623 Public Sphere
  • 2. served to inhibit or advance democracy. Given the central- ity of free and open dialogue for the functioning of democ- racy, of particular concern to Habermas is identifying where such discussions take place and under what conditions. His guiding question has been: Where is the space in which democracy is nurtured? Habermas refers to this space as the public sphere, a term related to civil society, which refers to a realm of social life distinct from both the state and the mar- ket, where participation in public life occurs with a spirit of cooperation and a norm of reciprocity. Seen in this light, Habermas construes the public sphere as a space within civil society. By claiming that a prerequisite of a democratic polity is an autonomous public sphere, Habermas can be seen as building on the work of Max Weber (1864–1920) and Seymour Martin Lipset (1922–2006) in attempting to identify the most important social structural conditions underpinning democratic societies. What Habermas refers to as the “bourgeois public sphere” came into its own in the nineteenth century, most fully in Britain, as a result of the triumph of capitalism and the establishment of a laissez-faire state. In contrast to the feudal era, in which the economy and polity were inti- mately linked, in the earliest phase of the capitalist indus- trial era this linkage was uncoupled. The public sphere can be visualized as being carved out between the economy and the state, being separate and distinct from them. It is an arena that is accessible to all citizens on the basis of equality and thus is not dominated or controlled by pow- erful economic actors or by state officials. His perspective on this sphere has been depicted as a theater where polit- ical discourse occurs. The public sphere requires the existence of indepen- dent voluntary associations of citizens and an institu- tionalized apparatus that permits the unrestricted dissem- ination of information and ideas. Thus the panoply of organizations—ranging from local parent-teacher associa- tions and neighborhood clubs to labor unions, human rights organizations, environmental organizations, and so on—is part and parcel of this arena. In addition, so are media committed to ensuring that citizens are informed about the vital issues of the day and to providing outlets for articulating an array of stances on issues and forums for debate and dissent. Critics of Habermas contend that he tends to roman- ticize the public sphere during its earlier years, confusing his ideal vision about how it should have functioned with the reality of the historical situation, which involved from its inception persistent intrusions of powerful economic interests and the repressive tactics of the state. The result was that the public sphere never managed to be as autonomous as he seems to think. This may be a some- what unfair characterization of Habermas’s position because he provides ample evidence of being aware of the limitations of actual existing public spheres in the past. He does think, however, that public spheres in the past exhib- ited greater autonomy than their contemporary versions. At the same time Habermas leaves himself open to charges of utopian thinking, especially when he develops the ideal of a state of undistorted communication, free from coercion and restraint. In his view, democratic deci- sions arise dialogically. In an ideal speech situation, people talk to others to come to an understanding of which ideas and values are best, not to manipulate others to get one’s way. In other words, he assumes a willingness on the part of citizens to freely embrace the better argument. There are examples of situations in which this ideal seems to have been more or less realized, such as old New England town meetings and Quaker meetings. The participants in these examples can be fairly depicted as being cooperative, tolerant, critical, self-reflective, and rational, whereas the differences among them in terms of both economic status and levels of human capital are not great. Two other criticisms have been leveled at Habermas’s portrait of the public sphere. First, some feminists con- tend that he is insufficiently attentive to the relationship between the private and public spheres and its implication for gender relations. Second, he has been accused of oper- ating with an overly rationalistic and overly civilized view of human nature. Habermas has expressed concern that the public sphere in what he describes as “late capitalism” is threat- ened by what he calls “refeudalization.” What he refers to is the tendency to link or integrate the economy and the polity in a way quite at odds with their separation in the earlier period of capitalist development. Given his focus on communication, it is not surprising that he is particu- larly apprehensive about the concentration of media power in the hands of political and economic elites. Large media conglomerates have arisen to choke dissident voices out of the market, and these corporations, far from being independent of political power, serve as apologists for it. The result is that genuine public debate has given way to propaganda and increasingly sophisticated public relations. Although the portrait he paints might lead to despair regarding the future of democracy, Habermas presents a cautious optimism. In particular he sees in the new social movements—environmental, antinuclear, peace, feminist, and so forth—potential for change. These movements have abandoned any belief in the possibility of revolution- ary change, opting instead for radical reforms and a com- mitment to nonviolent change. Underlying his tempered hope for the future is a particular understanding of human nature. It presupposes that people are by nature political and thus concerned about and willing to participate in issues related to the well-being of society as a whole. Public Sphere 624 INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION
  • 3. SEE ALSO Associations, Voluntary; Civil Society; Feminism; Government; Habermas, Jürgen; Persuasion; Public Sector; Rationality; Utopianism; Volunteerism; Weber, Max B I B L I O G R A P H Y Calhoun, Craig, ed. 1992. Habermas and the Public Sphere. Cambridge, MA: MIT Press. Habermas, Jürgen. [1962] 1989. The Structural Transformation of the Public Sphere: An Inquiry into a Category of Bourgeois Society. Trans. Thomas Burger. Cambridge, MA: MIT Press. Habermas, Jürgen. 1979. Communication and the Evolution of Society. Trans. Thomas McCarthy. Boston: Beacon. Habermas, Jürgen. [1981] 1984–1987. The Theory of Communicative Action. 2 vols. Trans. Thomas McCarthy. Boston: Beacon. Habermas, Jürgen. 1996. Between Facts and Norms: Contributions to a Discourse Theory of Law and Democracy. Trans. William Rehg. Cambridge, MA: MIT Press. Zaret, David. 2000. Origins of Democratic Culture: Printing, Petitions, and the Public Sphere in Early-Modern England. Princeton, NJ: Princeton University Press. Peter Kivisto PUBLIC UTILITIES Public utilities are firms that are sometimes synonymous with natural monopolies. Some examples of public utili- ties include the Tennessee Valley Authority and Illinois Power. These organizations are generally so called because there is structurally no room for market competition— one firm can “naturally” produce at lower costs than com- petitors who are eventually priced out of the market. Thus, natural monopolies tend to be regulated by govern- ments in the public interest. However, being a natural monopoly is not a necessary prerequisite for government regulation. Industries that are not natural monopolies may be regulated for a number of reasons, including ser- vice reliability, universal access, and national security. Public utilities generally supply goods or services that are essential, like water, electricity, telephone, and natural gas. For example, the transmission lines for the trans- portation of electricity or natural gas pipelines have natu- ral monopoly characteristics in that once these lines are laid by one utility, duplication of such effort by other firms is wasteful. In other words, these industries are char- acterized by economies of scale in production. Left to themselves, private utility companies would make decisions that are most profitable for them. Such decisions generally involve too high prices and relatively little service compared to competitive conditions. These decisions may or may not be in the best interests of the society. The government or the society would like to see these services being economically accessible to all or most of the population. Not all utility companies are in the private sector. In many countries, utilities are owned by the government. Generally, in these cases, the government creates autonomous bodies for government utilities to prevent them from day-to-day political interference. In such instances, the government utilities’ goals are better aligned with societal goals; however, they tend to be less efficient than their private sector counterparts. Two main issues facing public utilities are coverage of service area and pricing. Alternately stated, the regulators try to balance the competing aims of economic efficiency and social equity. Economic efficiency generally requires that markets be left to work by themselves with little intervention. Such instances are usually not equitable or fair (some consumers might be priced out of the market). Equity issues demand that everyone gets the service at a “just” price. However, these instances can turn out to be inefficient (think about the cost to an electric utility of having to run cables a number of miles especially to serve one or two remote fishing cabins that are used sparingly). In general, the pricing of the services of public utili- ties is problematic. As mentioned above most public util- ities are structural monopolies, implying that there is no room for competition in the market for services they pro- vide. However, if they are left alone to price like monop- olies, the resulting price is too high and a large part of the market area may not be served. While the utility compa- nies have no complaints about such arrangements, given the essential nature of the services they provide, the soci- ety would like to provide such services to all or most of the population. Think, for instance, about the undesirability of denying heat to someone in the winter. Hence, their pricing actions are regulated. However, these decisions are somewhat problematic. If these utilities are mandated to set prices at the low com- petitive levels, they generally end up making losses. So there continues to be an ongoing tussle between regulators and the utility companies regarding a “fair” price between the monopoly and competitive levels. Common alternate pricing actions include (1) setting prices equal to average production costs and serving the maximum area possible; (2) rate of return regulation; and (3) price cap regulation. Under average cost pricing, the utility is assured of breaking even, since the prices equal average costs. The equity aspects are somewhat met since most of the market is being served. However, the regu- lated firm lacks incentives to minimize costs. Under rate of return regulation, the regulators let the firms charge any INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION 625 Public Utilities