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Independent Utility Regulators: Lessons from Monetary Policy

Author

Listed:
  • Paul Levine

    (University of Surrey and LBS)

  • Paul Levine

    (University of Surrey and LBS)

  • Jon Stern

    (LBS and NERA)

  • Francesc Trillas

    (Universitat Autonoma de Barcelona and LBS)

Abstract

This 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.

Suggested Citation

  • Paul Levine & Paul Levine & Jon Stern & Francesc Trillas, 2003. "Independent Utility Regulators: Lessons from Monetary Policy," School of Economics Discussion Papers 0403, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:0403
    as

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    File URL: https://repec.som.surrey.ac.uk/2003/DP04-03.pdf
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    References listed on IDEAS

    as
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    3. Olivier Boylaud & Giuseppe Nicoletti, 2003. "Regulation, market structure and performance in telecommunications," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 99-142.
    4. Spiller, Pablo T, 1996. "Institutions and Commitment," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 421-452.
    5. Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-397, May.
    6. Brown, Gordon, 2001. "The Conditions for High and Stable Growth and Employment," Economic Journal, Royal Economic Society, vol. 111(471), pages 30-44, May.
    7. Alexander, Ian & Mayer, Colin & Weeds, Helen, 1996. "Regulatory structure and risk and infrastructure firms : an international comparison," Policy Research Working Paper Series 1698, The World Bank.
    8. Paul Levine & Joseph Pearlman, 2002. "Delegation and Fiscal Policy in the Open Economy: More Bad News for Rogoff's Delegation Game," Open Economies Review, Springer, vol. 13(2), pages 153-174, April.
    9. Pablo T. Spiller & Ingo Vogelsang, 1997. "The Institutional Foundations of Regulatory Commitment in the UK: The Case of Telecommunications," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 153(4), pages 607-607, December.
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    11. Spulber, Daniel F & Besanko, David, 1992. "Delegation, Commitment, and the Regulatory Mandate," Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(1), pages 126-154, March.
    12. Currie, David & Levine, Paul L & Rickman, Neil, 1999. "Delegation and the Ratchet Effect: Should Regulators Be Pro-Industry?," CEPR Discussion Papers 2274, C.E.P.R. Discussion Papers.
    13. Levine, Paul & Currie, David, 1985. "Optimal feedback rules in an open economy macromodel with rational expectations," European Economic Review, Elsevier, vol. 27(2), pages 141-163, March.
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    Citations

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    Cited by:

    1. Stern, Jon & Cubbin, John, 2005. "Regulatory effectiveness : the impact of regulation and regulatory governance arrangements on electricity industry outcomes," Policy Research Working Paper Series 3536, The World Bank.
    2. Jordi Gual & Francesc Trillas, 2003. "Telecommunications Policies: Determinants and Impact," Working Papers 2003/2, Institut d'Economia de Barcelona (IEB).
    3. Stern, J. & Cubbin, J., 2004. "Regulatory effectiveness: the impact of regulation and regulatory governance arrangements on electricity industry outcomes: a review paper," Working Papers 04/01, Department of Economics, City University London.
    4. Vagliasindi, Maria, 2012. "The role of regulatory governance in driving PPPs in electricity transmission and distribution in developing countries : a cross-country analysis," Policy Research Working Paper Series 6121, The World Bank.
    5. Cubbin, J. & Stern, J., 2004. "Regulatory effectiveness: the impact of good regulatory governance on electricity industry capacity and efficiency in developing countries," Working Papers 04/04, Department of Economics, City University London.
    6. Bel, Germà, 2004. "Estado ¿versus? Mercado/State ¿Versus? Market," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 22, pages 231-249, Agosto.

    More about this item

    Keywords

    Monetary policy; credibility; regulation; under-investment; delegation.;

    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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