By Arnold Kling
My latest essay is on the economics of Pepco, the apparently under-performing electric utility.
I am concerned by two factors that insulate Pepco from facing market discipline concerning reliability. The first is that Pepco is a regulated monopoly. The second is that there is no price indicating the benefits of reliability.
Right now, the only way that consumers can register a preference for reliability of electricity is by complaining. In the essay, I describe a crude mechanism that might be used to put a price on reliability. A major point of the essay is to illustrate the importance of a price system in order to arrive at the proper trade-off between the cost of investment in reliability and cost of outages.
In your comments, please think in terms of realistic alternatives that recognize trade-offs. If you claim to be able to do away with trade-offs altogether, then spell out how your nirvana scheme would work.