Jon Stern

Regulatory governance: criteria for assessing the performance of regulatory systems: An application to infrastructure industries in the developing countries of Asia

Abstract This paper discusses the main issues affecting the regulatory governance of infrastructure industries and their implications for regulatory practice. The discussion covers the need for economic regulation under both state ownership and private ownership, as well as issues of regulatory commitment, including the role of concession contracts. It then discusses the theory of regulatory governance and its implications for institutional design. On the basis of this discussion, we derive a set of six criteria for appraising the performance of regulatory frameworks for infrastructure industries. These criteria are then applied to a set of twelve infrastructure industries in six developing Asian countries and we report the results of the appraisal, including trends towards convergence of regulatory frameworks and the implications for private investment. Among our main conclusions are (i) the importance of structural liberalisation as a catalyst for developing good practice regulation; and (ii) the importance of transparency for effective regulation.

Social mobility and the interpretation of social class mortality differentials.

The discussion of health inequalities in Britain (e.g. in the Black Report) has been conducted largely on the basis of social class mortality differentials measured by achieved social class and not by social class of origin. It is shown in this paper that social class mortality differentials by achieved social class are not invariant to the rate of social mobility and that the use of them is likely to result in a biased measure of trends in health inequalities when the absolute rate of social mobility varies over time. It is further shown that if, as is likely, health status is a factor systematically affecting the probability for an individual of upward or downward social mobility, then an increase in the rate of social mobility may well result in constant or widening social class mortality differentials by achieved social class even if the differentials are narrowing when measured by social class of origin. It is claimed that this process may well explain why the observed social class mortality differentials, which are measured by achieved social class, have not fallen in Britain during the post-1945 period.

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

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.

What Makes an Independent Regulator Independent

As private capital is increasingly invested in utilities across the globe, the issue of regulation and its inferace with different types of government, culture and society has become every more complex. This article focuses on the design of regulatory systems outside the US and the UK. With references to current practice in many countries, the author argues that formal regulatory independence and accountability is not always a necessary condition for effective regulation (though where feasible and effective it carries potential economic benefits). On the other hand, he also argues that an informal or advisory regulatory system may work better in some situations. In all circumstances, informal accountability and a clear understanding of the “rules of the game” are crucial for effective regulation.

Modelling the Costs of Electricity Regulation: Evidence of Human Resource Constraints in Developing Countries

Successful electricity industry reform depends on the presence of an appropriately staffed regulatory agency for the liberalised sector. However developing countries can have resource constraints that make the establishment of an effective regulatory agency difficult. This paper attempts an econometric modelling of staff numbers in electricity regulatory institutions. We specify a model of the determinants of staff numbers that reflects electricity system complexity as well as national economic and regulatory environments. We empirically estimate a translog cost function specification of the model using data on 60 electricity regulators collected from an international questionnaire survey in 2000-01. We conclude that there are significant differences between the regulatory cost functions of developed and developing countries and that, in establishing independent regulatory agencies, developing countries face high fixed costs relative to market size.

Electricity and telecommunications regulatory institutions in small and developing countries

Abstract The spread of utility liberalisation and privatisation to middle and low income developing countries raises the problem of whether and how they can establish an effective regulatory capability or whether the supply of regulatory services is likely to be insufficient. The paper presents evidence on the size of electricity regulatory agencies in 24 mainly middle and lower income countries as well as the number of high-level, specialist regulatory staff and the potential resource pool from post-school education. The paper also discusses how far the problem can be alleviated and/or avoided by the use of regulation by contract, regulation by multi-national regulatory agency or contracting-out. The paper concludes that such solutions are unlikely to be generally effective but that informal exchanges of information and pooling of resources between national regulators on a market-driven basis, as seen in Southern Africa and the EU, is a promising option. The paper concludes by pointing to the need to ascertain the minimum required regulatory capability in developing countries as perceived by Governments and potential investors.

Economic reform of the electricity industries of Central and Eastern Europe

The purpose of this paper is the following: firstly, to chart how much economic reform of CEE electricity industries has taken place to date; secondly, to discuss why progress has been so limited; and, thirdly, to consider the prospects over the next few years. In charting the economic progress to date, we will consider and discuss progress in electricity price unbundling and rebalancing; in utility commercialisation; in industry and market restructuring and liberalisation; and in privatisation, as well as the development of economic regulation. For the reasons outlined above, we will explore the pricing issues in some detail as they are essential for understanding the difficulties in making progress in the other aspects of economic reform. The analysis concentrates on the 10 countries with which the EU has an Association Agreement and who are stated candidates for EU membership (the EU 10).

Extending the economics of disorganization

Many of the states of the former Soviet Union have experienced a dramatic collapse of output during transition, which has not yet been reversed in a sustainable way. The economics of disorganization, proposed by Blanchard (1997) and tested empirically by Blanchard and Kremer (1997), reasons that this phenomenon can be explained by specificity of inputs and the breakdown of traditional domestic supply linkages. We replicate the Blanchard-Kremer study for Ukraine and Kazakhstan, and also find that longer and more complex domestic supply chains are associated with greater reductions in output. When we extend their analysis to incorporate measures of the complexity of the Commonwealth of Independent States (CIS) trade and non-CIS trade however, we find that complexity of non-CIS trade is the significant factor in explaining the output collapse. We therefore argue that the disintegration of the Council for Mutual Economic Assistance and the requirement of hard currency trade, are equally, if not more, significant in explaining the output declines experienced by Ukraine and Kazakhstan.

Regulation and Contracts for Utility Services: Substitutes or Complements? Lessons from UK Railway and Electricity History

It is frequently suggested that regulation by contract can effectively substitute for regulation by a specialist regulatory agency for utility service industries. We examine these arguments and consider legal aspects and the historical experience of the UK as regards railways and electricity. We conjecture that regulation and contracts are complements for network industries rather than substitutes so that a regulatory agency allows for better and simpler contracts, which are easier to monitor, enforce and revise. This is what would be expected from the theory of incomplete contracts. We demonstrate that UK historical experience is strongly consistent with this view.

Independent Utility Regulators: Lessons from Monetary Policy

This paper explores the similarity of the underlying economic problems that lead to the establishment of (a) independent central banks to operate national monetary policies and (b) independent regulatory agencies for telecommunications and other utility service industries. We show that, in both cases, the adoption of agencies inde- pendent of government results from the need to achieve credibility and a reputation for economically sound long-run behaviour while preserving signi¯cant discretion to handle unanticipated events. We show that this solution is superior to policy rules that are ¯xed in advance. Both for central banks and regulatory agencies, what is re- quired are institutions that provide limited and accountable discretion within a clear policy framework, for example via high levels of accountability and transparency in their decision making processes. On the basis of a review of the empirical literature, we argue that central banks with superior governance arrangements, particularly on accountability and transparency, out-perform those with inferior arrangements and we discuss how this work might be extended to utility regulatory agencies.