Recall that a basic problem of regulation is to overcome to the extent possible the asymmetries between the government and the operator.1 Even if regulatory instruments overcome this asymmetry, it is still important to ensure that the actions of the government and the regulator match the long-term interests of the country’s citizens. It may be tempting, for example, for politicians to pressure the regulator to pursue short-term political interests that hurt the longer-term interests of customers of the utility services.2 To overcome such problems to the extent possible, countries adopt rules for regulation and government institutions that encourage regulation under the law,3 as well as independence, transparency, predictability, legitimacy, and credibility of the regulatory system, to help ensure that regulation serves the long-term interests of the country.
This section addresses these issues. First, it examines institutional design issues, such as the role of the regulator, followed by a review of regulatory decisions, ethics and stakeholder relations are described. Following this section’s narrative is a list of references, organized by topic.
- See Foundations of Regulation.
- This highlights what are in essence two principal-agent problems, one between the government (acting as the principal) and the regulator (acting as the agent) and another between the public (acting as the principal) and the government (acting as the agent).
- See Foundations of Regulation’s reference section on Rationale for Regulation for information about the economic foundations of law.