| Abstract: | Like attempts at achieving effective regulation of economic activity where it is warranted, deregulation can entail hidden complexities and produce unintended outcomes. The principle that deregulation begets “second order” effects that may necessitate further regulatory reform is epitomized in the case of natural gas. This article shows how the partial deregulation of natural gas wellhead markets under the Natural Gas Policy Act of 1978 caused a variety of distortions to emerge in other segments of the industry. Because the distortions are mutually reinforcing, no single policy, such as immediate decontrol of “old” gas or subjecting pipeline companies to common carrier obligations, will solve all of them; rather an integrated program of regulatory reform is required. The article concludes by outlining such a program and commenting on how its implementation through administrative and legislative actions should be carried out in order to reduce the need for further reform in the future. |
