Economics and Choice Architecture: What Can Be Learnt from Water Regulation in Italy

Focusing on the experience of Water Regulation in Italy, this paper emphasizes two aspects. First, it examines a situation in which the traditional theories underlying the choice of introducing regulation may not allow exhaustive interpretations. The Italian experience suggests that public decision-making/transaction costs may be involved in designing and approving a complete overhaul of the sector and this may lead lawmakers to assign a heuristic legislative responsibility to an existing administrative body. Second, in a multilevel regulatory framework, especially where responsibilities at different levels may overlap or be profoundly interlinked, a proper combination of nudges and incentives have been shown to be required to overcome the difficulties encountered. In addition, a survey of the main quantitative results of the new regulation is provided, demonstrating the effectiveness – compared to the track-record of the sector – of the new approaches, in terms of governance, the promotion of investments, quality improvements and attention to end users. Further outcomes relating to new forms of public intervention and innovative initiatives in the institutional field are also described.