Independent Utility Regulators: Lessons from Monetary Policy
AbstractThis 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.
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Bibliographic InfoPaper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0403.
Length: 34 pages
Date of creation: Feb 2003
Date of revision:
Monetary policy; credibility; regulation; under-investment; delegation.;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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