ECONOMIC DEREGULATION of American industry is one of the most important experiments in economic policy of our time.1 In 1977, 17 percent of U.S. GNP was produced by fully regulated industries.2 By 1988, following ten years of partial and complete economic deregulation of large parts of the transportation, communications, energy, and financial industries that total had been cut significantly-to 6.6 percent of GNP.3 The political forces behind the decision to change the market conditions under which roughly $600 billion of U. S. output is produced were strong and varied, but according to political scientists Martha Derthick and Paul Quirk (1985, p. 36), deregulation would never have occurred if economists-especially microeconomists-had not generally supported it through their research.4 In retrospect, it is fair to ask: were microeconomists able to develop a theoretical and empirical framework to explain regulation and its effects and to form predictions of deregulation's effects? Were they able to predict the actual effects of deregulation? This paper surveys the evidence to address these questions and of-
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