Levy, B and Spiller, P (1996)
‘A Framework for Resolving the Regulatory Problem’in B. Levy and P. Spiller (eds.) Regulation, Institutions and Commitment, pp. 1-35.
Week 2 Core Reading: Theories of Institutional Design
Summary by Carmel Jorgensen – after classThe World Bank sponsored authors consider regulation as a “political economic problem”.
In theauthor’s view overcoming the fundamental issue of the
is necessary for effective regulation. There must be certainty and protection for the investors against
. Lodge (week 2), views this work within the
: commitment, commitment problem, political expropriation (risk of change toregulatory regime), regulatory design, institutional endowments
The World Bank, and others, supported the privatization of nationalized utilities as the solution totheir poor performance, and to bring about improved service and lower prices. But foundprivatization success (measured by investment, fair/low prices to users and profits toshareholders/company) did not always happen. Why?Following their 5 country study
, the author’s conclude that
to a regulatory regime iskey to the success of utility privatization. To have commitment, the regulatory design must takeinto account a country’s
to the regulatoryregime from unhelpful
Political expropriation happens when the rulesgoverning the regulatory system can be easily reversed or
by politics/parliament.The question utility investors will ask before making a long-term investment is, “How easy canlegislation be reversed?” “How far can we trust this regulatory regime”? Investors don’t like thethreat of short term arbitrary changes (changes the investors are not in charge of).
This “new institutional economics” approach to regulation is meant to take “…into account the way in which institutions,political and economic, affect the performance of economics over time.”
UK, Philippines, Argentina, Jamaica, Chile
Commitment here = “restraining mechanisms” to prevent fluctuations/CHANGE. Change can be because of apreference change; an intergenerational change; influenced by the short-term horizon of politics.
Institutional endowments, as defined by North and others:
and executive institutions – formal mechanisms public appointments and laws and regs,
and systems– formal mechanisms for aptg judges, judiciary structure, and disputeresolution private/private and private/state3.custom and informal norms that tacitly restrain the actions of individuals or institutions4.societies social interests, balance b/n them and role of ideology5.Country’s administrative capabilities.This study focuses on the first two and how they interact with regulatory processes and economic conditions.
Change is also called “arbitrary administrative action”.