Quotulatiousness

January 24, 2013

The LCBO’s tentative, faltering steps to allowing wider sales of wine

Filed under: Bureaucracy, Cancon, Wine — Tags: , , , , , — Nicholas @ 09:39

In the latest Ontario Wine Review, Michael Pinkus pours scorn on the LCBO’s latest attempt to fend off an actual competitive market:

The LCBO is about money and profits — and about control. I know I will have people freaking out at me for saying this but I want you to ask yourself “why?” Why would the LCBO suddenly decide that grocery stores are the place to put locations? Doesn’t sound all that smart to me — and not what we asked for. We asked for the right to pick up booze and bread in the same place — the government has said fine but you’ll still have to visit two cashiers and wait in line. Heck, I could have gone across to the mall parking lot to the LCBO location, got a bigger selection than in that tiny kiosk they’ll most likely rent and I still would have had to stand in line at a different cashier — where’s the convenience?

Plus we already have Wine Rack and Wine Shoppe locations in grocery stores … and therein lies the rub (as Shakespeare would say). The LCBO already knows those stores are profitable, the “pilot project” is done, there’s no study needed, Vincor and Peller have already done the research (and if you don’t think the LCBO has had a look at those numbers you’ve got another surprise coming) — this is just another way for the LCBO to compete with those two companies — and by extension, the wineries of Ontario. [Ed. Note: just in case you don’t know Peller and Vincor hold the majority of private liquor store licenses in the province — something they acquired before 1988 when free trade came in].

“… and will also create new VQA boutiques for Ontario wines inside five of its own stores.” A novel idea? I don’t think so. They have one in St. Catharines already (of all places), and what do you want to bet the LCBO will place these new “boutiques” where they are most needed like Niagara, Prince Edward County and Windsor where wineries already exist — no better way to compete with your competition than on their own turf.

January 22, 2013

The free (and un-free) markets in water

Filed under: Economics — Tags: , — Nicholas @ 09:58

Water is often described as a “natural monopoly”, because most of us only encounter a water bill from a municipally owned water utility company. But there are other markets for water where the price varies exactly the same way as it does for other commodities:

Earlier this year the Aurora Sentinel reported that the city will sell $9.5 million worth of water to an energy company. Why? Because the company is offering four times the price offered by other customary buyers. Potential profits in oil and gas make the water highly valued by drillers. Of course, this valuation is subject to change along with the prices of oil, crops, and all of the other resources required to produce them. If oil prices decline relative to crop prices, drillers will bid less for the water and farmers more, and water will flow to its most highly valued use. In other words, when markets are allowed to work, it’s a beautiful thing.

Public utility customers aren’t used to, and don’t really understand, how a free market works when it comes to water. Because a local water utility is seen by most economists as a natural monopoly, retail costs are fixed at low levels despite potential fluctuations in supply and demand. These low costs are accomplished not only through price fixing, but also through rationing (i.e., the public utility regulates when and how much water can be used, rather than consumers responding to true prices).

Water rationing usually affects what the utility considers a low-value use of the good, such as lawn watering. You are permitted to water your lawn only during certain hours, on certain days, and for a certain amount of time. Even if you have a prize-winning English garden in the middle of a desert and would gladly pay more for water, you aren’t given that opportunity. The guy next door with the dandelion lawn, whose sprinkler spends more time spraying the sidewalk than the grass, has no incentive to be more careful with his water, except when he’s forced to follow the directive of the local authority and water his sidewalk on Tuesdays and Thursdays between the hours of 6 and 8 p.m.

Because there is no price incentive for the average public utility water customer to respond to, there are very few creative conservationists. Instead, public utilities resort to ridiculous advertising campaigns aimed at persuading their customers to use less of their products. You’ve probably received the flyers or seen TV ads sponsored by your water and electric utilities offering tips on how to use less. A more direct way to economize on water and energy use might be to let prices fluctuate for public utility customers like they do for customers in the wholesale market.

December 23, 2012

China’s rare earth monopoly bid goes smash

Filed under: Business, China, Economics, Technology — Tags: , , — Nicholas @ 11:20

Remember the headlines from a few years back, when China was the source of a disproportional amount of the rare earth required for many of our modern electronic toys like iPhones and hard drives and such? China’s ham-handed attempt to constrain supply and jack up the prices has signally failed:

For I’ve been saying for years now that this “China will control all the rare earths” thing is nonsense and so it has turned out to be: nonsense.

Not that it hasn’t tried to control it all, mind, it’s just that it has failed. Failed for the reason we’d expect from communist state: its officials don’t understand free market economics. Specifically, it’s possible to successfully exercise monopoly power only if that monopoly is not contestable.

[. . .]

We were also continually reminded that China has 30 per cent of the world’s reserves: which simply shows that people don’t know what a reserve is. It’s not, as just about everyone assumes, the amount of something that’s available. It’s an amount whose exact location is known, which we’ve measured, drilled, sampled and baked a fluffy cake from – and which we can mine with current techniques AND with which we make a profit at current prices. Miss any of those steps (except maybe the cake) and it is not a reserve: it’s a resource. And resources of rare earths are vast: several are individually more common than copper for example. China has 30 per cent of the proven fluffiness, not 30 per cent of all that is available.

I will admit to a certain suspicion that the stories we heard were rather more a well-organised PR campaign to allow a couple of companies to suck subsidies out of the US taxpayer. Or perhaps even, given the conversation I had with a lobbyist about how to try to get on that gravy train, a plot to enrich lobbyists via companies paying to try to suck subsidies out of the US taxpayer.

So, now that I have finished puffing out my chest to “We Will Rock You”, on to what to economists is the blindingly obvious point of this story and what it means for the tech business. You might well have a monopoly: but it ain’t going to do you much good if, when you try to exercise your monopoly power, people come along and successfully contest your monopoly. We thus need to divide monopolies into two classes: those that are contestable and those that are not.

Back in 2010, I commented on Tim’s original debunking of the story:

So, if they have a monopoly on 95% of the world supply, why won’t it hold up? Because in spite of the name, they’re not as rare as all that … and there are substitutions that can be made for some or all of the current application needs. By restricting the supply and/or driving up the price, China will spur new competitors to enter the field and new sources of rare earths to be developed. In the short term, it will definitely create price increases (which, of course, will be passed on to the consumer), but in the medium-to-long term they will create a vibrant competitive marketplace which will almost inevitably drive the prices down below current levels.

Isn’t economics fascinating?

November 30, 2012

Stopping by the Copyright Office on a Snowy Evening

Filed under: Law, Media, USA — Tags: , , , — Nicholas @ 11:28

Virginia Postrel charts the ever-expanding copyright protections under US law:

Even as digital technology has made reproducing, remixing and repurposing creative works easier — with potentially enormous benefits for consumers and producers of new works — the monopoly privileges of copyright have expanded. The result is a bizarre combination of rampant copyright violations, frequent encroachment on legitimate fair use, suppression of new technologies and business models, and the ever-present threat of draconian penalties.

Consider how the law applies to Robert Frost’s classic poem “Stopping by Woods on a Snowy Evening,” first published in 1923. Back then you only got copyright privileges for works officially registered with the copyright office, and only for a term of 28 years, which could be renewed if you filed again, as Frost did in 1951.

Requiring such simple procedures reserved copyright privileges for creators with strong commercial or sentimental interests in limiting the publication of their works. Today, by contrast, copyright automatically applies to every eligible work, including your vacation snapshots and your 4-year-old’s handmade Mother’s Day card.

Under the law when Frost wrote his poem and renewed the copyright on the volume including it, it would have presumably entered the public domain in 1979, more than a decade after its author’s death in 1963. That’s not what happened. Beginning in 1962, Congress gradually extended copyright terms, and in 1976 it passed a new copyright act that gives works already under copyright a new term of 75 years from their first publication. That meant “Stopping by Woods” wouldn’t go into the public domain until 1998.

That’s not what happened either. Just as the poem’s copyright was about to expire, Congress passed the Sonny Bono Copyright Term Extension Act, which gave existing works a new copyright term of 95 years. (The 1923 Frost volume including the poem was one of the works cited in a lawsuit unsuccessfully challenging the act’s constitutionality.) So Frost’s poem won’t enter the public domain until 2018 — assuming that Congress doesn’t pass yet another extension.

November 11, 2012

The natural lifecycle of a “monopoly”

Filed under: Asia, China, Economics, Technology — Tags: , , — Nicholas @ 12:53

In Forbes, Tim Worstall celebrates the natural end to a “monopoly” — the quasi-monopoly of Chinese exports of rare earth compounds:

These past several years I’ve been shouting to all who would listen that while China does indeed have a stranglehold on current production of rare earths that’s not something that we really need to worry about. For the important thing about rare earths is that they’re not rare (nor earths either). There are plenty of deposits around and we can get all we need from other areas of the world if we should care to.

    The same cannot be said of Kuantan, the Malaysian locale where Lynas plans to build a rare earth processing plant, a type of facility residents and Australian supporters say, in online campaigns, will result in “millions of tonnes of toxic radioactive waste left behind”.

    Residents took Lynas to court in Malaysia, resulting in the suspension of its operating licence. That decision was overturned yesterday.

Lynas is the company desiring to mine the Mt. Weld deposit (a nice rich one it is too). They are going to separate the RE concentrate at that plant in Malaysia. There’s been a vocal campaign against the licensing of that extraction plant and Lynas has, as above, just succeeded in over-turning a previous license refusal. Once up and operating fully the plant should supply some 20,000 tonnes a year of REs. This is a substantial portion of demand outside China: it’s some 15% or so of entire global demand in fact.

And thus we again see how an apparent monopoly isn’t really all that much use to the supposed monopolist. It certainly was true that China supplied 95-97% of the world’s REs. Largely because they were willing to mine and supply at prices that made it not worth anyone else’s while to do so. But when they tried to constrain supply, to exercise that monopoly, instead of being able to exploit us all they simply encouraged the competition that destroys that monopoly.

Markets do indeed work and the only monopoly that can really be exploited is one that isn’t contestable. And an attempted monopoly in something as common as rare earths simply is contestable and thus cannot be exploited.

October 26, 2012

“Canada has effectively become the Digital Third World”

Filed under: Business, Cancon, Media, Technology — Tags: , , — Nicholas @ 09:21

In Forbes, Reuven Cohen looks at the state of internet access in Canada:

Before I get into what was discussed, I need to provide some context to the current state of Internet connectivity in Canada. To understand the Internet landscape in Canada is to endeavour into the realm of duopolies, bandwidth caps and mediocre Internet connections. As it stands today, Canada has effectively become the Digital Third World.

A recent video interview with The Globe and Mail’s Omar El Akkad and Netflix CEO Reed Hastings summaries the problems with cloud computing in Canada. Hastings’ specifically calls out capped Internet plans as compared to the rest of the world saying “Canada has the misfortune of being the country with the lowest internet caps maybe in the world but certainly in the developed world and in all of the Netflix world. In Mexico, Internet is largely uncapped; in the US it’s largely uncapped; in the UK it’s completely uncapped; in Canada there’s a number of providers with very low caps…I don’t quite understand it.”

Herein lies the problem, the widespread use of bandwidth caps in Canada is partially the result of a market defined by vast geographies and a limited population base. This has resulted in a highly concentrated market controlled by a small group of ISPs. Making things worse is a highly government controlled telecom industry that prevents foreign investments, particularly for wireless and broadband services. This combination of factors has led to one of the most restrictive markets for cloud computing as well as other internet related services found in any of the major industrialized nations today.

October 24, 2012

Persuading Michigan voters to refuse a new free bridge to Canada

Filed under: Cancon, Politics, USA — Tags: , , , , , , , — Nicholas @ 10:05

The announcement back in June must have appeared too good to be true: a new bridge between Detroit, Michigan and Windsor, Ontario to be completely funded by Canada. Michigan voters are being urged to refuse the deal:

Canada, understand, has agreed to pay for the bridge in full, including liabilities — and potential cost overruns — under an agreement that was about a decade-in-the-making and officially announced to much fanfare, at least on the Canadian side of the border, by Prime Minister Stephen Harper and Michigan Governor Rick Snyder in Windsor/Detroit in mid-June.

For Michigan, it is a slam-dunk arrangement. As Mr. Norton told one audience: ‘‘If this proves to be a dumb financial decision, it’s on us, not on you.’’

It’s a free bridge, a vital new piece of publicly owned infrastructure — for both countries — and yet one that is in grave danger of being demolished before construction even begins when Michigan voters head to the polls for a ballot initiative attached to the Nov. 6 elections.

[. . .]

Manuel (Matty) Moroun, an 85-year-old self-made billionaire who owns the 83-year-old Ambassador Bridge, is Cynic-in-Chief. The Ambassador is currently the only transport truck-bearing bridge in town. Twenty-five percent of Canadian-American trade, representing about $120-billion, flows across it each year.

It is a perfect monopoly for the Moroun family, a golden goose that just keeps on laying eggs, putting upwards of $80-million a year in tolls, duty free gas and shopping sales in their pockets. Allowing a Canadian-financed competitor into the ring without a fight isn’t an option.

September 3, 2012

The great maple syrup heist must have been an inside job

Filed under: Business, Cancon, Food — Tags: , , , — Nicholas @ 10:02

The first time I heard about Quebec’s strategic maple syrup reserve was when someone made off with a quarter of the province’s sweet, sticky liquid:

On Friday, news broke that thieves had stolen $30 million dollars worth of Quebec’s strategic maple syrup reserves. Much as the United States keeps a stock of extra oil buried in underground salt caverns to use in case of a geopolitical emergency, the Federation of Quebec Maple Syrup Producers has been managing warehouses full of surplus sweetener since 2000. The crooks seem to have made off with more than a quarter of the province’s backup supply.

[. . .]

But harvesting maple is a fickle business, and that makes expanding the industry tricky. The trees need cold nights and mildly warm days to yield sap, meaning production can vary greatly year to year based on the weather. That’s a potential problem for the big syrup buyers, whether they’re bottlers or large food companies that make cookies or cereal. Quaker can’t pour a bunch of time and money into developing a maple-and-brown-sugar-flavored version of Life, only to find out it won’t be able to get enough of its ingredients, or that they’ll have to pay through the nose for each liter of syrup.

H/T to Nicholas Packwood for the link.

August 21, 2012

Verity Stob learns to love IPv6

Filed under: Humour, Technology — Tags: , — Nicholas @ 08:45

A love story, of sorts:

Somewhere in the near future…

There were more than 50 people in the room, so it was hot and airless, and it smelled of stale sweat. Government-sponsored crisis posters, tatty and torn, were sticky-taped to the yellowish walls. One urged its readers: ‘Don’t let your selfishness come between little Johnny and his Wikipedia’, another enquired: ‘Do you NATter with your Neighbours? Don’t squander the nation’s resource!’

(The latter effort was illustrated with a carefully posed photo of a beaming, bosomy Minister for IT Conservation encouraging a weedy-looking Everybloke to plug his laptop into her generously exposed router socket. The photo had recently acquired a pleasing piquancy. This same Minister had been caught selling a bunch of government-owned IP addresses, supposedly earmarked for use in schools for the next generation of Olympic heroes, to the International Bank of Fatcat and Taxhavenia.)

Under the flickering fluorescent lighting, a shuffling, miserable queue of the desperate and the hopeless zigzagged towards the bullet- sound- and Windolene-proof glass of the counter. At the front of the queue was me.

The official behind the glass pursed his lips, flicked my carefully filled-in paperwork to one side with disdain, and leaned forward to speak into his goose-neck microphone…

August 6, 2012

India’s blackouts are a sign that reform is desperately needed

Filed under: Economics, India — Tags: , , , , — Nicholas @ 10:20

The Economist on the massive blackouts in India recently:

FOR an aspiring economic superpower, there can be few more chastening events than electricity cuts as massive as those that struck northern and eastern India this week. An area (including the capital, Delhi) in which more than 600m people live faced blackouts over two days. Infrastructure, from traffic lights to trains, stopped working. Hospitals, sanitation plants and offices ground to a halt. Airports and factories had to rely on backup generators, often fuelled by truckloads of diesel.

The impact on India’s economy goes far beyond lost output. The blackout will badly damage the country’s reputation, and highlights the rotten infrastructure that is hobbling its efforts to catch up with China.

[. . .]

At one end, not enough cheap coal is being dug up and gasfields are sputtering. At the other, the national transmission grid needs investment. Meanwhile the “last mile” distribution companies, largely state-owned, that buy power and deliver it to homes and firms, are financial zombies. Much of their power is pinched or given away free. Local politicians put pressure on them to keep tariffs low, which leads to huge losses. Squeezed between a shortage of fuel and end-customers who are nearly bust, those private generating firms are now cutting back on vital long-term investment in new plants.

[. . .]

The solution is to cut graft, tackle vested interests and allow markets to work better. The coal monopoly needs to be broken up and local distribution firms privatised. Yet despite the looming crisis, for a decade the government has shirked doing what is clearly necessary, just as it has failed to implement key tax reforms, cut public borrowing or open the retail sector to competition. It has allowed corruption and red tape to damage other vital industries, such as telecoms.

July 28, 2012

Matt Gurney: The LCBO and the “social responsibility” joke

Filed under: Business, Cancon, Government, Health — Tags: , , , , , — Nicholas @ 00:08

Following-up yesterday’s post on the call to break up the LCBO’s monopoly, Matt Gurney points out that the “social responsibility” claim is a farce:

It’s impossible for the LCBO to really pretend that its primary goal is to prevent Ontarians from drinking when it advertises heavily in print and broadcast media and has periodic sales and events to introduce consumers to new products. You’d think that would be enough to kill the social responsibility argument, but apparently not.

But there are plenty of other things that do. If Ontario believed that it had a social responsibility to directly control the sale of potentially harmful and addictive substances, why are cigarettes sold in every convenience store, milk mart and gas station in the province? Cigarettes kill an estimated 13,000 Ontarians every year. It’s completely inexplicable that this deadly substance can be sold by non-government monopolies while less lethal substances are tightly controlled under the banner of social responsibility. If the only way to ensure that alcohol is consumed in a socially responsible way is to have the province control its sale, why doesn’t that apply to tobacco? What about the two products is different in such a way that makes one OK for convenience stores and one not? This is the unanswered question that drives a stake through the heart of the social responsibility argument. Either the booze controls aren’t about social responsibility or the province is massively dropping the ball on the smokes. Which one is it, guys?

And it’s not like Ontario is somehow blind to the problem of smoking. During the tenure of Premier Dalton McGuinty, the province has cracked down on smoking in any number of ways, including but not limited to outlawing smoking in restaurants and bars (even those with specially ventilated smoking areas), making it illegal to smoke in a car containing a child (including, memorably, even if the child is a teenager who is also smoking), and forcing convenience store owners to cover up their cigarette displays, lest a child see a brightly coloured box and become a tobacco addict by default. All of these steps clearly demonstrate that Ontario is aware of, and concerned about, smoking. Yet I can still buy a pack at my local convenience store. Hmm.

July 27, 2012

The Ottawa Citizen calls for breaking up the booze monopolies

Filed under: Business, Cancon, Government, Wine — Tags: , , , , , , — Nicholas @ 13:16

Ontario has an odd relationship with alcohol sales. Beer sales are controlled through a protected monopoly (The Beer Store, formerly known as the Brewer’s Retail), while liquor sales are mostly through the government-owned LCBO stores. There are a few exceptions: Ontario wineries are allowed to sell wine at the winery, and craft brewers can also do retail sales at the brewery. Certain privileged large wineries are allowed to sell their own products (not all of which are actually Ontario wines) through a limited number of retail stores, usually co-located with grocery stores.

An editorial in the Ottawa Citizen makes a good case to blow up the current system and take the government out of the retail sales market altogether:

There are two main arguments defenders make for protecting the LCBO from any more competition.

The first is that only a government-operated retail chain can keep alcohol out of the hands of children. That argument is so weak it barely deserves a response, yet it never seems to die. As mentioned above, private operators already sell alcohol, and must follow the rules. Corner stores sell cigarettes, which also have strict rules governing the age of the purchaser. And private stores are already selling alcohol under the LCBO banner, especially in areas where the population doesn’t justify a stand-alone LCBO store.

Under a good enforcement regime, with stiff penalties for non-compliance, private operators have every incentive to follow the rules.

The second argument is that the LCBO is a money-maker for the government, so most private-sector competition must remain illegal.

It’s an honest argument, but that’s about all it has going for it. Would we allow the state to tell private store-owners that they couldn’t sell, say, chairs, or T-shirts, because the government needs to corner that business?

The government should have the power to tax. It should have the power to restrict sales to minors, and set rules to enforce that. It should not have the power to elbow Canadians out of certain industries. Not only is this an unjustified use of the powers of the state, but it reduces competition, and the innovation that accompanies competition.

Marni Soupcoff agrees with the Citizen‘s editorial stance:

The Beer Store and the LCBO do a decent enough job that most Ontarians don’t get more exercised about their forced dominance than grumbling a bit here and there. That’s a shame because the anti-competitive nature of the laws keeping beer and wine out of grocery and convenience stores is truly antithetical to a free society, particularly when the health and safety concerns are so bogus. The laws also end up having the pernicious consequence of conditioning Ontarians to expect their government to limit their consumer choice, and businesses their freedom, which makes us more likely to accept further encroachments down the road.

That’s an abstract argument on which to base a campaign for a policy change. The better talking point might be the one U.S. libertarian writer Jacob Sullum raised last year in article about state liquor monopolies: if they were really that good at serving customers, they’d have no reason to exist. The point of government retailing alcohol is supposed to be to make the nasty stuff less accessible. If the government retailer is putting out glossy magazines glorifying the joys of wine and food pairings and offering fancy tasting rooms and convenient store hours, hasn’t it defeated its own (dubious) purpose? In the LCBO’s case, it seems particularly absurd that a marketing director in charge of “Food & Drink & Visual Merchandising” gets paid almost $140,000 a year to entice customers to consume a product deemed too dangerous to be sold in a Sobey’s.

July 19, 2012

“The USOC Can Do Whatever It Wants Because Olympics Act Of 1978”

Filed under: Law, Sports, USA — Tags: , , — Nicholas @ 14:10

At Techdirt, another example of the true modern Olympic spirit:

Ah, the Olympics. The spirit of cooperation. Of athletic competition. Of the essence of global feel-good-ness, where all the Olympic committees of the world come together to put on a spectacle made of the most brilliant athletes in the world.

Oh, and they also like to stifle links to critical pieces (do we have your attention, boys?), by banning their fans from sharing their experiences via social media, and threatening ICANN for refusing to block Olympic-related terms. And, now, Steve M shares a story from the Philadelphia Daily News about how the United States Olympic Committee has won a 30 year battle they didn’t know they were fighting with a gyro shop.

    “Three decades after it burst from the starting block, the Greek eatery Olympic Gyro has received a cease-and-desist email from the USOC, the nonprofit corporation responsible for training and funding U.S. teams. The June 7 notice demanded deletion of the word “Olympic” from the food shop’s title, claiming copyright of the word under a 1978 law.”

This legislative insanity, which I assume is entitled “The USOC Can Do Whatever It Wants Because Olympics Act Of 1978”, basically grants the USOC sole usership of the word “Olympic” in the United States, amongst other travesties.

July 17, 2012

Ending supply management

Filed under: Business, Cancon, Economics, Food, Government — Tags: , , , — Nicholas @ 09:00

In the Globe and Mail Economy Lab, David Bond explores equitable ways to compensate farmers who will lose out if-and-when the federal government abandons the supply management system:

The quota was originally given out for free, therefore farmers or their direct successors still in the business would receive nothing for their original allocation and then 90 per cent of whatever they paid at the time they acquired additional amounts of quota.

Why only 90 per cent? Well having quota allowed the holders to earn returns on their investment well in excess of the returns that could have been earned in alternative forms of farming. Having enjoyed for more than 40 years these superior returns thanks to their ability to persuade government to protect them from competition it’s time they “enjoyed” some of the costs they foisted upon Canadian consumers.

While the potential beneficiaries of this compensation may complain of shoddy treatment they evidenced little sympathy on the costs they passed on to the consumers much less the harmful impact they had on potential exports of other agricultural and non-agricultural exports because government refused to modify supply management during trade negotiations.

July 7, 2012

Deregulating a “natural monopoly”

Filed under: Economics, USA — Tags: , , — Nicholas @ 09:44

Arnold Kling is a Pepco customer. Pepco is one of the regulated electricity providers in Washington DC and surrounding area. He suggests that there may be a better way to deliver electricity to customers:

A recent storm in the Washington, D.C. area left many households without power for days. Customers served by one company, Pepco, appeared to suffer the worst. Pepco had the slowest rate of power restoration of all the area’s electricity suppliers.

As an economist and a Pepco customer, 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.

The fact that Pepco is a monopoly means that its incentive to improve its operations is limited. Regulators may cajole and threaten, but ultimately Pepco is like an employee with tenure — no matter how badly it performs, it can never be fired.

The fact that there is no market price for reliability makes matters even worse. The amount that Pepco invests in ensuring reliable provision of electricity does not have to bear any relationship whatsoever to the value that consumers place on reliability.

Update: Oops, forgot the hat-tip:

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