y. As an initial matter, determining the appropriate rate of return has proven quite difficult, because such a determination depends on identifying other ventures bearing similar risk. This determination is complicated by the fact that small differences in rates of return can have dramatic effects on the total revenue that the carrier is allowed to generate. For the reasons described above, determining the proper rate base has also proven to be a significant regulatory challenge. Regardless of the methodology used, calculating a proper rate base was notoriously difficult, typically devolving into a battle between experts. Determining how much particular configurations of network elements would cost on the current market raised difficult problems of proof. In addition, changes in demand and technology would often render particular facilities obsolete or would imply a very difficult network configuration. Cost-of-service ratemaking also induces a number of systematic inefficiencies. As an initial matter, cost-plus pricing regimes give firms little incentive to econ- omize. Regulators attempt to curb this problem by only allowing recover of costs that are "prudent," but that often requires difficult determinations that are fraught with hindsight bias. Firms, moreover, are allowed to earn a rate of return on capital expenses, but not on operating expenses. Most firms usually have the choice to use production processes that are more or less capital-intensive. The ratemaking methodology discussed above thus introduces a bias in favor of capital-intensive solutions even when other solutions would be more efficient (Averch and Johnson 1962). Eventually, traditional ratemaking gave way to the imposition of price caps, in which the maximum rates that utilities could charge in any particular year did not depend on costs, but rather on the rates set the previous year, adjusted to reflect inflation and increases in productivity. Determining initial price levels and price adjustments in subsequent years has proven to be extrem