OR models as tools for the regulation of industry

This paper presents some novel observations and recommendations about the uses and usefulness of operational research models as a tool for regulation of industry. Reference is made to the first use of a model for regulatory analyses by the United States Federal Power Commission in a natural gas proceeding. A criticism is given of this first attempt to use a model for regulatory purposes, and from this criticism a strategy for a more effective use of models is developed. As a part of this strategy the concept of ex post models is introduced. In addition the potential conflict of model use and the guarantee of due process of law is considered. The paper concludes with a set of remarks on the recommended posture that an operational research analyst should assume when working with policy makers.