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The role of regulation and commitment in the development of telecommunications in Chile


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  • Galal, Ahmed
  • DEC
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    Over six decades, Chile experimented with three regulatory regimes and ownership patterns for its telecommunications sectors, each with radically different investment patterns. Until 1970, Chile relied on private ownership and rate-of-return regulation, but excess demand persisted. In the 1970s, Chile relied on public ownership of two regulated monopolies, but the sector grew even more slowly than before. After 1982, Chile deregulated some market segments, introduced benchmark regulation, and returned to private ownership. The new regulatory regime and privatization doubled the number of lines in service in only four years. The author explains investment behavior as a function of the solutions to two contracting problems: between government and the firm, and between government and interest groups. The author concludes that regulatory rules on pricing, entry, and conflict resolution mechanisms are critical for investing in such asset-specific utilities as telecommunications. More important, the outcome of regulatory reform depends on a match between reform and both the prevailing political and judicial systems and interest group politics. According to the author, Chile satisfactorily resolved the two contracting problems in the 1980's. Chile's new regulations are reasonably efficient and very specific about how tariffs are to be calculated, how entry is to be governed, and how conflicts are to be resolved. The rules are embodied in a law that is relatively difficult to change (because the judicial system is independent). The impetus for reform came from the emergency of a new private entrepreneurial class, whose growth depends on modern telecommunications services.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1278.

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    Date of creation: 31 Mar 1994
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    Handle: RePEc:wbk:wbrwps:1278

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    Keywords: Environmental Economics&Policies; Public Sector Economics&Finance; National Governance; ICT Policy and Strategies; Economic Theory&Research;


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    1. Steven Tadelis & Oliver E.Williamson, 2012. "Transaction Cost Economics
      [The Handbook of Organizational Economics]
      ," Introductory Chapters, Princeton University Press, Princeton University Press.
    2. Galal, A., 1991. "Public enterprise reform: lessons from the past and issues for the future," World Bank - Discussion Papers, World Bank 119, World Bank.
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    Cited by:
    1. Shirley, Mary M., 1999. "Bureaucrats in business: The roles of privatization versus corporatization in state-owned enterprise reform," World Development, Elsevier, Elsevier, vol. 27(1), pages 115-136, January.


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