Advanced Search
MyIDEAS: Login

Regulation and Private Sector Development in Latin America

Contents:

Author Info

  • J. Luis Guasch
  • Pablo T. Spiller

Abstract

Utilities are characterized by three features: first, their required technologies are commonly considered specific, sunk investments; second, they display aspects of natural monopoly, including economies of scale and scope in the physical provision of basic services, economies of scale in network planning and management, network externalities and advantages in raising capital; and third, their products are massively consumed, usually by captive customers with fairly inelastic demand. Thus, for example, an electricity company's assets have very little value in an alternative use, network externalities and economies of density imply that it may not be economical to have multiple wires deployed on the same street, and finally, its product is consumed by a large proportion of a city's population, who have an inelastic demand for electricity. Compare this situation to that of the steel industry, also characterized by large sunk investments. While steel mills have very little value in alternative uses, the economies of scale and scope are trivial compared to the size of the market. Furthermore, while everyone indirectly consumes steel products, very few individuals pay any attention to the price of steel. Thus, utilities are not characterized simply by specific investments or economies of scale. Or consider the newspaper industry. There are clearly large economies of scale and scope in the operation of city newspapers. Increases in the speed of communication and computer design use have drastically amplified the sector's economies of scale. This has resulted in a reduced number of newspapers per city while readership numbers have remained relatively constant. While readers are usually a relatively large portion of the population (at least of the voting population), newspapers are not utilities, because while there may be a substantial amount of sector specific human capital (reporters' contacts with local politicians may be specific to the locality), the technology is increasingly generic and investments are transferable. Shutting down a newspaper and moving the printing presses, desks, computers, etc, elsewhere has become more and more common. Those three features that distinguish the utility sector from the rest of the economy are at the core of the contracting problems that have traditionally raised the need for governmental regulation of utilities. In the utility sector three types of contracting problems are particularly important: contracting problems between firms and the government, which distort the investment incentives of utility companies; contracting problems between firms and their customers that result in the exercise of market power by the incumbent utility; and contracting problems between governments and interest groups that require governments to distort utility pricing for income distribution (cross-subsidization) purposes. When correcting for these three contracting problems, appropriate regulation will provide the incentives for firms to invest to efficient levels, induce the firms to price their services to second-best levels, creates the framework for productive efficiency and minimize opportunities for cross- subsidization or interest groups capture.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.worldbank.org/html/lat/english/papers/trade/reg_psd.txt
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Thomas Krichel)
Download Restriction: no

Bibliographic Info

Paper provided by World Bank Latin America and the Caribean Region Department in its series Reports with number _018.

as in new window
Length:
Date of creation: 1995
Date of revision:
Handle: RePEc:wop:bawlad:_018

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Guisan, M.C. & Aguayo, E, 2005. "Industry and Economic Development in Latin America," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(3), pages 133-142.
  2. Ogus, Anthony, 2004. "The Importance of Legal Infrastructure for Regulation (and Deregulation) in Developing Countries," Centre on Regulation and Competition (CRC) Working papers 30603, University of Manchester, Institute for Development Policy and Management (IDPM).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wop:bawlad:_018. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.