A Coasean general equilibrium model of regulation

Although marginal cost pricing is necessary for welfare maximization, firms that produce under conditions of decreasing average cost incur losses if they price at marginal cost. In this paper, the Coase two-part tariN is extended to several cases of common costs by assessing surplus in order to recover the losses of the regulated natural monopolist; the existence of equilibria in these cases is demonstrated. Three models are considered in the context of an Arrow-Debreu private ownership economy: a model of the regulated monopolist who charges hookups to both households and iirms who use the good; a model of the regulated natural monopolist who is allowed to make positive economic profit; and finally a model where two or more monopolists are under the control of a single regulator.