Politics, Transaction Costs, and the Design of Regulatory Institutions

Abstract

No AccessPolicy Research Working Papers25 Jun 2013Politics, Transaction Costs, and the Design of Regulatory InstitutionsAuthors/Editors: Antonio Estache, David MartimortAntonio Estache, David Martimorthttps://doi.org/10.1596/1813-9450-2073SectionsAboutPDF (0.1 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:March 1999 Providing a realistic framework for assessing the efficiency of government intervention requires viewing the government not as a monolithic entity but as a number of different government bodies, each with its own constituencies and regulatory tools. Providing a more complete framework for assessing the efficiency of government intervention requires moving away from the idealistic perspective typically found in the normative approach to traditional public economics, contend Estache and Martimort. Such a move requires viewing the government not as a monolithic entity but as many different government bodies, each with its own constituency and regulatory tools. Not only is the multitiered government limited in its ability to commit, but interest groups influence the regulatory process and impose significant transaction costs on government interventions and on their outcome. Estache and Martimort discuss the nature of those transaction costs and argue that the overall design of the government is the result of their minimization. Among the points they make in their conclusions: ° Safeguards built into regulatory contracts sometimes reflect and sometimes imply transactions costs which influence, or should influence, the optimal tradeoff between rent and efficient in ways practitioners sometimes ignore. ° Most of the literature on transaction costs arising from government failures would agree that to be sustainable, regulatory institutions should be independent, autonomous, and accountable. How these criteria are met is determined by the way transaction costs are minimized, which in turn drives the design of the regulatory framework. In practice, for example, if there are commitment problems, short-term institutional contracts between players are more likely to ensure autonomy and independence. This affects the duration of the nomination of the regulators. Short-term contracts may be best, but contracts for regulators typically last four to eight years and are often renewable. The empirical debate about the design of regulators' jobs is a possible source of tension. Practitioners typically recommend choosing regulators based on professional rather than political criteria, but that may not be the best way to minimize regulatory capture. Professional experts are likely to come from the sector they are supposed to regulate and are likely to return to it sooner or later (as typically happens in developing countries). On the other hand, elected regulators are unlikely to be much more independent than professional regulators; they will simply represent different interests. Practitioners and theorists alike emphasize different sources of capture and agree that one way to deal with its risk is to make sure the selection process involves both executive and legislative branches. This paper-a product of the Regulatory Reform and Private Enterprise Division, Economic Development Institute-is part of a larger effort in the institute to increase understanding of infrastructure regulation. Antonio Estache may be contacted at [email protected] Previous bookNext book FiguresReferencesRecommendedDetailsCited ByResearching the Political Economy of Regulation at the Local Level: Theoretical and Methodological Issues27 October 2016Reguliuojančių institucijų veiklos konsolidacija diegiant elektroninės valdžios sprendimusEfficacité et efficience statique et dynamique dans la régulation des télécommunicationsL'Actualité économique, Vol.92, No.412 July 2017Market Restructuring in Electricity in Mexico: Lessons from International DeregulationLatin American Policy, Vol.6, No.128 April 2015Policy and regulatory design for developing countries: a mechanism design and transaction cost approachPolicy Sciences, Vol.47, No.31 December 2013Capture Theory and the Public Interest: Balancing Competing Values to Ensure Regulatory EffectivenessInternational Journal of Public Administration, Vol.37, No.1012 August 2014Rationalizing Rustic Regulators: How Should Australia's National Economic Regulators Be Reorganized?SSRN Electronic JournalTransaction Cost Politics in the Map of the New InstitutionalismWhat Determines State Capture in Poland?SSRN Electronic JournalPublic Governance, Human Capital and Environmental Outcomes: an Analysis Based on Self-Organizing MapsEnvironmental Policy and Governance, Vol.22, No.222 March 2012Global Health Initiatives and aid effectiveness: insights from a Ugandan case studyGlobalization and Health, Vol.7, No.14 July 2011Public interest versus regulatory capture in the Swedish electricity marketJournal of Regulatory Economics, Vol.38, No.329 September 2010The Effects of Average Norm Model Regulation: The Case of Electricity Distribution in SwedenReview of Industrial Organization, Vol.36, No.35 May 2010Political Accountability and Regulatory Performance in Infrastructure IndustriesAn Empirical AnalysisWorld Bank Economic Review, Vol.23, No.326 November 2012Anti-Corruption in Regulation – A Safeguard for Infrastructure ReformsCompetition and Regulation in Network Industries, Vol.10, No.1Reform of Water Institutions: Review of Evidences and International ExperiencesSSRN Electronic JournalThe Social Losses from Inefficient Infrastructure Projects: Recent Australian ExperienceSSRN Electronic JournalRegulatory Reform, Development and Distributive ConcernsSSRN Electronic JournalCREATION OF A SEPARATE TELECOM REGULATORY AGENCY: A DURATION ANALYSIS OF ITS TIME PATTERNContemporary Economic Policy, Vol.24, No.3Utility price regulation and time inconsistency: comparisons with monetary policyOxford Economic Papers, Vol.57, No.31 July 2005Allocating Law-Making Powers: Self-Regulation vs. Government RegulationSSRN Electronic JournalModelling the Costs of Energy Regulation: Evidence of Human Resource Constraints in Developing CountriesSSRN Electronic JournalThe New Institutional Economics of Antitrust and RegulationSSRN Electronic Journal View Published: November 1999 Copyright & Permissions Related RegionsLatin America & CaribbeanRelated CountriesCzech RepublicTimor-LesteRelated TopicsEnvironmentFinance and Financial Sector DevelopmentInfrastructure Economics and FinanceMacroeconomics and Economic GrowthPrivate Sector DevelopmentSocial Protections and Labor KeywordsASYMMETRIC INFORMATIONBOUNDED RATIONALITYCOLLUSIONCOMPETITIONCONSUMERSCOSTSDECISIONSDISTRIBUTIONECONOMICSFAILURESINCENTIVE COSTSINCENTIVESINFLUENCEINTERESTMONOPOLIESOPTIMIZATIONOUTCOMESTHEORYVOTERSWELFARE PDF DownloadLoading ...

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 81 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.