This article reviews both the theoretical and empirical literatures on regulatory capture. The scope is broad, but utility regulation is emphasized. I begin by describing the Stigler--Peltzman approach to the economics of regulation. I then open the black box of influence and regulatory discretion using a three-tier hierarchical agency model under asymmetric information (in the spirit of Laffont and Tirole, 1993). I discuss alternative modelling approaches with a view to a richer set of positive predictions, including models of common agency, revolving doors, informational lobbying, coercive pressure, and influence over committees. I discuss empirical work involving capture and regulatory outcomes. I also review evidence on the revolving-door phenomenon and on the impact that different methods for selecting regulators appear to have on regulatory outcomes. The last section contains open questions for future research. Copyright 2006, Oxford University Press.

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Regulatory Capture: A Review

Benchmarking and regulation: international electricity experience

Infrastructure industries and services are crucial for generating economic growth, alleviating poverty, and increasing international competitiveness. Safe water is essential for life, and health. Reliable electricity saves businesses and consumers from having to invest in expensive backup systems, or more costly alternatives, and keeps rural women and children from having to spend long hours fetching firewood. Widely available and affordable telecommunications and transportation services can foster grassroots entrepreneurship, and thus are critical to generating employment, and advancing economic development. In most developing and transition economies, private participation in infrastructure, and restructuring have been driven by the high costs, and poor performance of state-owned network utilities. Under state ownership, services were usually under-priced, and making it difficult to expand services. The report indicates that although privatization, competitive restructuring, and regulatory reforms improve infrastructure performance, several issues must be considered and conditions met for these measures to achieve their public interest goals. First, reforms have significantly improved performance, leading to higher investment, productivity, and service coverage and quality. Second, effective regulation-including the setting of adequate tariff levels-is the most critical enabling condition for infrastructure reform. Regulation should clarify property rights, and assure private investors that their investments will not be subject to regulatory opportunism. Third, for privatization to generate widely shared social benefits, infrastructure industries must be thoroughly restructured and able to sustain competition. Thus restructuring, to introduce competition should be done before privatization, and regulation should be in place to assure potential buyers of both competitive, and monopoly elements.

Reforming Infrastructure: Privatization, Regulation, and Competition

The State in a Changing World

The Impact of Regulation on Economic Growth in Developing Countries: A Cross-Country Analysis

Regulatory governance: criteria for assessing the performance of regulatory systems

More than 200 new infrastructure regulators have been created around the world in the last 15 years. They were established to encourage clear and sustainable long-term economic and legal commitments by governments and investors to encourage new investment to benefit existing and new customers. There is now considerable evidence that both investors and consumers-the two groups that were supposed to have benefited from these new regulatory systems-have often been disappointed with their performance. The fundamental premise of this book is that regulatory systems can be successfully reformed only if there are independent, objective and public evaluations of their performance. Just as one goes to a medical doctor for a regular health checkup, it is clear that infrastructure regulation would also benefit from periodic checkups. This book provides a general framework as well as detailed practical guidance on how to perform such regulatory checkups.

Handbook for Evaluating Infrastructure Regulatory Systems

This article assesses whether a regulatory law and higher quality regulatory governance are associated with superior outcomes in the electricity industry. The analysis, for 28 developing economies over 1980–2001, draws on theoretical and empirical work on the impact of telecommunications regulators in developing economies. Controlling for privatization and competition and allowing for country-specific fixed effects, both regulatory law and higher quality regulatory governance are positively and significantly associated with higher per capita generation capacity. This positive impact increases for more than 10 years, as experience develops and regulatory reputation grows. The results are robust to estimating alternative dynamic specifications (including error correction models), to inclusion of economy governance political risk indicators, and to controlling for possible endogeneity biases. The article concludes with a short discussion of causality in panel data modeling of governance models and the policy...

The Impact of Regulatory Governance and Privatization on Electricity Industry Generation Capacity in Developing Economies

In section 1 we discuss the need for economic regulation in infrastructure industries and how this need is met in state-owned and privately owned utilities. In section 3 we discuss regulatory commitment and its implications for regulatory governance as well as the potential role of concession contracts for regulatory commitment. Section 4 provides an exposition of regulatory governance its implications for institutional design and regulatory processes and practices and the concepts of formal and informal accountability. Ftom this discussion we derive our six criteria for appraising regulatory systems. Section 5 concludes the paper with an application of these appraisal criteria to 12 infrastructure industries in developing Asian economies. We report the main results and discuss trens including trends towards convergence of regulatory frameworks and the implications for private investment in Asian developing countries' infrasture.

Regulatory Governance: Criteria for Assessing the Performance of Regulatory Systems

The authors review a number of studies on the effectiveness of utility regulatory agency and governance arrangements for the electricity industry, particularly for developing countries. They discuss governance criteria and their measurement, both legal frameworks and surveys of regulatory practice. They also discuss the results from econometric studies of effectiveness for regulatory agencies in the electricity and telecommunications industries and compare these with the results from econometric studies of independent central banks and their governance. The authors conclude with a discussion of policy implications and of priorities for information collection to improve understanding of these issues.

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Jon Stern

Papers

Regulatory governance: criteria for assessing the performance of regulatory systems

Handbook for Evaluating Infrastructure Regulatory Systems

The Impact of Regulatory Governance and Privatization on Electricity Industry Generation Capacity in Developing Economies

Regulatory Governance: Criteria for Assessing the Performance of Regulatory Systems

Regulatory Effectiveness : The Impact of Regulation and Regulatory Governance Arrangements on Electricity Industry Outcomes