Institutional arrangements in regulation include institutional design, methods for review and appeal of regulatory decisions, mechanisms for encouraging ethical conduct, and processes for managing relationships with stakeholders. The design of regulatory institutions includes such features as appointment processes for regulators, agency financing, scope of responsibilities and authority of the agency, regulatory processes for protecting stakeholders’ rights and providing stakeholders with information, and the management structure of the regulatory agency.
Appointment and removal processes for regulators and financing of the regulatory agency affect the regulator’s ability to operate independently of short-term political interests and the government’s ability to ensure that the regulator is following the government’s established policies. For example, if the president, parliament, or ministry of a country can remove the regulator at will, then absent extraordinary self control on the part of politicians, the regulator has an incentive to serve the politicians’ short-term interests. On the other hand, a regulator-for-life who has control of her own budget would have extraordinary power and, absent strong judicial oversight, would be able to pursue personal agendas that may conflict with the policies and laws of the country.
Policies that provide due process for stakeholders ensure that the persons affected by regulation are able to provide the regulator with information and opinions that are relevant to the regulator’s decisions. Policies that require the regulator to keep records, make the records publicly available, and provide substantive explanations for regulatory decisions allow customers and other stakeholders to observe how the regulator makes decisions and facilitate appeals of regulatory decisions.