Advances in Regulatory Economics series
Edited by Michael A. Crew, Paul R. Kleindofer and James I. Campbell Jr
Chapter 4: An Economic Model of the Regulatory Structure Created by the Postal Accountability and Enhancement Act of 2006
* Michael D. Bradley,† Jeﬀ Colvin‡ and Mary K. Perkins§ 1. INTRODUCTION The enactment of the Postal Accountability and Enhancement Act (PAEA) in December 2006 substantially changed the structure of the regulations governing the United States Postal Service (USPS). USPS, like postal administrations in other industrialized countries, operates in an environment made harsher by competition from electronic alternatives to the mail – illustrated by the continual fall in First Class single-piece volumes since 2000. The reforms included in the PAEA are intended to provide the ﬂexibility that will allow USPS to succeed in today’s communications market. Under the PAEA, USPS is allowed to accumulate reserves rather than being obliged to break even, its ‘market-dominant’ products are subject to price-cap regulation (PCR), whereas its ‘competitive’ products’ prices are set by USPS. Although the PAEA includes other reforms, these changes, designed to aﬀect pricing behavior, have very powerful implications for the economic structure in which USPS operates and in this chapter we take an initial look at the consequences of the new economic structure. There has been important previous work in modeling regulatory regimes for diﬀerent posts (Crew and Kleindorfer, 1995; Billette de Villemeur et al., 2003; Dudley et al., 2005; de Donder et al., 2006a, 2006b) with a focus on the European Union. This focus is due to the changes in the actual regulatory frameworks governing European postal administrations, changes in pricing procedures, universal service obligations, and the scope of the postal monopoly. Because important changes are now occurring in the...