tomers and by lim- iting the prices it can charge. Although excess investment in network capacity has alleviated this problem in many areas over the past decade, such missteps do not always occur, and such problems are likely to emerge in the future. In addition, designating the incumbent as the carrier of last resort gives rise to a moral hazard problem that has been termed "the return of the prodigal son" (Sidak and Spulber 1997a). In effect, retail access creates the possibility that a customer that leaves the incumbent for a competitor might return, in which case the incumbent would have no choice but to provide service. An incumbent whose customers demand certain levels of quality will thus have to maintain excess capacity as insurance against this possibility. The resulting distortion in the optimal network configuration requires the incumbent to cross-subsidize its competitors. More importantly, by forcing the network owner to deviate from the optimal network configuration, retail access inevitably results in an increase in cost. As noted in Chapter 4, the rate regulation inevitably associated with retail access has raised additional implementation problems. State regulators have struggled to determine the appropriate rate base as well as the appropriate rate of return. As noted in Chapter 4, cost-of-service ratemaking also induces a number of system- atic inefficiencies by failing to give owners incentive to economize and by biasing them toward capital-intensive solutions. The shift to price cap regulation has not completely eliminated these problems. Retail access can also dull competitive forces in other ways. Filing tariffs requires local telephone companies to give their competitors advance notice of any changes Networks in Telecommunications in strategy. In addition, collusion is easier to maintain when products are undiffer- entiated and when the prices charged are visible. The tariffing process serves both of these functions and even places the state public utility commission in a position to punis