Institutional Design Issues

Core References

Handbook for Evaluating Infrastructure Regulatory Systems
Washington, DC: The World Bank Group, 2006.
Brown, Ashley C., Jon Stern, and Bernard Tenenbaum

Establishes metrics and models for evaluating regulatory systems. Provides short, mid-level, and in-depth evaluations. Explains independence models, transitional regulatory systems, and the difference between governance and substance, independence.

Infrastructure regulation in developing countries: an exploration of hybrid and transitional models
Paper prepared for the African Forum of Utilities Regulators 3rd Annual Conference, 15-16 March 2006, Windhoek, Namibia.
Eberhard, Anton

Gives examples of models for regulatory institutions. Analyzes how these designs have impacted performance.

Managing the Regulatory Process: Design, Concepts, Issues, and the Latin America and Caribbean Story
Washington, D.C.: The World Bank Group, 1999, Chapter 3.
Guasch, J. Luis, and Pablo Spiller

Describes the basic regulatory instruments and provides examples of where they have been used. Considers legislation, presidential decrees, and contracts.

A Framework for Resolving the Regulatory Problem
in Regulations, Institutions, and Commitment: Comparative Studies in Telecommunications, edited by Brian Levy and Pablo T. Spiller. Cambridge, U.K.: Cambridge University Press, 1996, pp. 1-35.
Levy, Brian, and Pablo T. Spiller

Describes characteristics of infrastructure monopolies and how they affect optimal institutional design, that is to say, the optimal organizational answer to the nature of transaction costs arising from government opportunism or dynamic inconsistency of investment policies. Examines how developing countries’ institutional endowments affect how they should design their regulatory governance. Defines institutional endowment, considering the legislative and executive institutions (mechanisms for appointment and for making and implementing laws and regulations), judicial institutions (mechanisms for appointment and for resolving disputes), customs and accepted norms, contending social interests, and administrative capabilities.

Sectoral References


Political Institutions and Electric Utility Investment: A Cross-Nation Analysis
September 1997. Revised version published in California Management Review 40(2): 1998, pp. 18-35.
Bergara, M., W. Henisz, and P. Spiller

Finds relevant evidence on the relationship between country institutional characteristics and investment in electricity sector. The study is based on a sample of 87 countries.

Other References

Renegotiation of Concession Contracts in Latin America
Mimeo, 2002.
Guasch, J., J. Laffont, and Straub

Finds evidence on the relationship between institutional characteristics, like bureaucracy quality, and contract renegotiation. The study is based on a data set of 1,000 concessions awarded in Latin-America countries.

Comparing Regulatory Systems: Institutions, Processes, and Legal Forms in Industrial Countries.
Working Paper No. 35, Centre on Regulation and Competition, University of Manchester, U.K., 2002.
Ogus, Anthony

Provides a general comparison of regulatory institutions across countries.


Definitions of Regulatory Independence and Institutional Mechanisms to Promote This (Appointments, Funding etc.)

Core References

Designing an Independent Regulatory Commission.
Working Paper 00-17, Public Utility Research Center, University of Florida, 2000.
Berg, Sanford, Ali Nawaz Memon, and Rama Skelton

Provides general guidelines and recommendations for introducing for refining an independent regulatory commission.

Designing Regulatory Institutions for Infrastructure – Lessons from Argentina.
Note no. 114 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, May 1997.
Estache, Antonio

Provides an analysis of the mutually related concepts of independence and economic autonomy. Argues that: (1) Regulators should operate independently from political pressures—from ministries and from the regulated enterprises, private or public; (2) Regulators should be appointed on the basis of professional rather than political criteria and should have formal protection from arbitrary removal during their term; (3) The appointment process should involve both the executive and the legislature, to ensure proper checks and balances; and (4) Regulatory agencies must first have their own resources.

Utility Regulators: The Independence Debate.
Note no. 127 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 1997.
Smith, Warrick

Analyzes the extent of discretion and the relationship between independence and accountability. Argues that regulatory independence is favored when there is a distinct legal mandate independent of ministerial control, professional criteria prescribed for board appointment, executive and legislative branches involved in appointment process, fixed term appointments and protection from arbitrary removal, staggered terms, autonomous budget and reliable sources of funding.

The Real World of Power Sector Regulation
Note no. 50 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, June 1995.
Tenenbaum, Bernard

States that the notion of an independent regulatory commission does not mean that the regulatory entity needs to be truly independent, since independence does not mean the absence of accountability. Furthermore, independence does not imply, either, that the regulatory entity should have complete authority over all possible decisions affecting the utility sector. Divisions of responsibilities are typical. Argues that what ultimately matters is not whether the regulatory entity is independent, but whether the government can give a credible commitment to investors and consumers. An alternative to independence is a completely specified regulatory regime that leaves little or no discretion to the regulatory entity, like the approach taken in Chile and Peru.

Sectoral References


Strengthening of the Institutional and Regulatory Structure of the Brazilian Power Sector
World Bank Report on the PPIAF Project for Brazil Power Sector, Task 4, Washington, D.C., December 2002.
Brown, Ashley C., and De Paula, Ericson

Explains that the funding of regulatory agencies is central to the balance between independence and accountability. Describes balancing accountability, independence, predictability, and dependability. Argues that there must be a legal prohibition against diversion of regulatory fees to other use by the Government.

The New Regulatory Politics of Electricity in India: Independent, Embedded, or Transcendent?
National Institute of Public Finance and Policy, New Delhi, India, 2005.
Dubash, Navroz K.

Examines cases of independence, capture, and interactions for regulatory agencies in India. Finds risks in regulatory developments in India, but also opportunities for regulation to transcend politics.

Regulatory Independence in Theory and Practice – A Survey of Independent Energy Regulators in Eight European Countries
February 2003.
Johannsen, Katja Sander

Provides a comparative assessment of regulatory independence of eight European electricity regulators (Austria, Denmark, Greece, Ireland, Italy, Luxembourg, Northern Ireland and Spain). Finds a significant variation in both the institutional design and the role played by independent regulatory authorities.


Telecommunications Regulations: Institutional Structures and Responsibilities
Working Paper no. 237, Organization for Economic Co-operation and Development (OECD), Washington, D.C., 26 May 2000.
Min, Wonki

Describes how independence can be strengthened if: (1) The regulator is structurally separate from the Ministry; (2) “The head of the regulatory body is appointed by the head of the Government (i.e. President or Prime Minister) with the approval of the legislative body;” (3) The regulator is not a single person (e.g. a director general), but is a collegiate body (e.g. a commission); (4) The commissioners have fixed, staggered terms; (5) Only the courts can overturn the decisions of the regulatory body; and (6) The regulator has autonomy in making personnel changes. Also discusses the relationship of the regulator to the policy-making body.


Regulating Public Automobile Transport: The Major Issues
Institute for Privatization and Management Research Center, Minsk, Belarus, 2005.
Babicki, Dzmitry and Stephan von Cramon-Taubadel

Focuses on the need for independent regulatory bodies to provide sound regulation for local transportation markets and analyzes public automobile transport in Belarus in terms of social and economic importance. As the structure of the sector changes with the development of private providers, the system of state regulation of public transportation needs to be reformed as well. The two major types of regulations needed are regulations on technical and safety standards, and market regulations.

Privatization and Regulation of Transport Infrastructure: Guidelines for Policymakers and Regulators
World Bank Institute Development Study, World Bank, Washington, D.C., 2000.
Estache, Antonio

Focuses on enhancing the abilities of regulators to oversee the liberalization of transport policies and on strengthening of the role played by private operators and investors in transport infrastructure. The book has two parts. The first part provides an overview of why economic regulation is important. The second part covers four subsectors: airports, ports, railways, and roads. The following are discussed for each subsector: relevance from the viewpoint of a regulator; main privatization and regulation trends; price and quality regulation issues that characterize the sector, and performance indicators that the sector’s regulators should be able to rely on to be effective in their jobs.

Other References

Independent Regulation and Telecommunications Performance in Developing Countries
Working Paper, University of Paris Panthéon-Sorbonne and Autorité de Régulation des Télécommunications, September 2001.
Baudrier, Audrey

Defines independence and finds that it has a positive impact on the growth rate of telecommunications penetration.

Elected versus Appointed Regulators – Theory and Evidence
NBER Working Paper W7579. Cambridge, MA: National Bureau of Economic Research, 2000.
Besley, Timothy, and S. Coated

Contrasts direct election with political appointment of regulators, arguing that when regulators are appointed, regulatory policy becomes bundled with other policy issues the appointing politicians are responsible for. Discusses how lack of voter interest affects regulatory policy outcomes.

Effective Utility Regulation and Independent Regulation: What Makes an Independent Regulator Independent?
Business Strategy Review 8(2), 1997, pp. 67-74.
Stern, Jon

Argues that formal regulatory independence and accountability is not always a necessary condition for effective regulation (though where feasible and effective it carries potential economic benefits). Explains how an informal or advisory regulatory system may work better in some situations.

Key Words

Accountability, Independence, Transparency, Dependability, Budgets, Funding


2. Agency responsibilities (sectoral coverage, tier of government, functions, etc.)

Core References

Designing Regulatory Institutions for Infrastructure – Lessons from Argentina.
Note no. 114 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, May 1997.
Estache, Antonio

Provides a description of the design of regulatory institutions for gas and power, water and telecommunication industries in Argentina. Discusses institutional design issues and summarizes the main functions and structural characteristics of the Energy Regulatory Agency.

Inside the Florida PSC 2003
Florida Public Service Commission

Describes the Florida Public Service Commission’s responsibilities, authority, and practices, including relationship with other governmental bodies and sector coverage.

The Economics of Regulation: Principles and Institutions
Cambridge, MA: MIT Press, 1988, Reissue Edition, vol. I, Chapter 2.
Kahn, Alfred

The three fundamental roles of regulators are to regulate the quality of service, the rate level, and the rate structure. Explains regulatory techniques and issues in each of these three roles.

Utility Regulators: Roles and Responsibilities.
Note no. 128 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 1997.
Smith, Warrick

Examines the utility regulator’s sector scope, its role in relation to ministers, and its role in relation to other regulatory entities. Makes a case for multi-sector agencies by arguing that they allow the pooling of scarce expertise, reduce the risk of industry and political capture and of inconsistency in regulatory approaches across sectors, and they help to deal with the blurring of industry boundaries.

Sectoral References


Strengthening of the Institutional and Regulatory Structure of the Brazilian Power Sector
World Bank Report on the PPIAF Project for Brazil Power Sector, Task 4, Washington, D.C., December 2002.
Brown, Ashley C., and De Paula, Ericson

Examines regulatory roles in granting concessions, conducting auctions, and sector planning. Roles in auctions include setting the terms and conditions and ensuring that auctions are conducted fairly and transparently. Describes potential conflicts of interest in having regulators involved in concessions and auctions. Also describes key considerations in deciding whether regulators should have roles in sector planning.


ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Modules 1 and 6.

Describes telecommunications regulators’ roles as implementers of policies set by the government.


Techniques for Railway Restructuring Policy
Research Working Paper number 380, World Bank, Washington, D.C., 1990.
Huff, Lee and Louis Thompson

Defines what is involved in restructuring railways so that they behave more like market driven enterprises. The question addressed is not whether the railway should be restructured, but how. Policies should focus on ensuring that the roles and responsibilities defined will actually be realized in law or enforceable agreement.

Other References

The Reform of the Utilities Sector in Argentina
Discussion Paper No. 2001/74, World Institute for Development Economics Research, (WIDER), United Nations University, Helsinki, 2001.
Delfino, Jose, and Ariel Casarin

Provides an assessment of the welfare changes and the distributional impact associated with the privatization of telecommunications, electricity, natural gas, and water and sewerage services of the Gran Buenos Aires area.

Multiregulation and Development
World Bank Development Report, Mimeo, 2000.
Laffont, J.

Develops an agency framework for the analysis of sector specific and multi-sector regulatory agencies in developing countries.


3. Mechanisms for ensuring accountability of regulatory decisions (due process, record keeping, content of written decisions, etc.)

Core References

Strengthening of the Institutional and Regulatory Structure of the Brazilian Power Sector
World Bank Report on the PPIAF Project for Brazil Power Sector, Task 4, Washington, D.C., December 2002.
Brown, Ashley C., and De Paula, Ericson

Explains the importance of transparency. States that the critical element on the reasoning and integrity implicit in the regulatory process is that no substantive opinion is rendered without full explanation, that directors clearly reveal the thought process by which they arrived at their decision(s) and opinion(s). Disagreements should be over matters of substance and not a matter of how fair or honest the process itself was. Explains that transparency also demands that all of the evidence, be in fact, opinion, or argument, that was presented to the decision makers in an effort to persuade them be publicly exposed. Absent compelling circumstances, no information should be withheld from public view.

Designing Regulatory Institutions for Infrastructure – Lessons from Argentina
Note no. 114 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, May 1997.
Estache, Antonio

Holds that accountability requires transparency in the regulatory agency’s decision-making process, and clear, simple procedural rules. Most important are: a) Rules setting deadlines for decisions; b) Rules requiring detailed justifications and nonpolitical reviews of decisions; c) Processes to ensure that all concerned parties have the opportunity to express their views in public hearings and to appeal decisions; and d) Rules to permit the removal of regulators in cases of proven misconduct. States that another key factor in accountability is the number of regulators.

Best Practice Regulation Handbook
Australian Government, 2007.
Office of Best Practice Regulation

Describes practices for regulatory impact analysis and for involving stakeholders.

Sectoral References


Commercial Management and Financing of Roads
World Bank Technical Paper number 409, World Bank, Washington, D.C., 1998.
Heggie, Ian and Piers Vickers

Commercializaton of roads requires four basic building blocks: a) establishing responsibility for managing roads; b) creating ownership of roads by involving users in their management; c) stabilizing road finance by securing an adequate, continual flow of funds; and d) strengthening management of roads by introducing sound businesses practices.

Other References

New Mechanisms for Public Accountability: The Indian Experience
Paul, Samuel

Provides an assessment of some initiatives to enhance public accountability in India, including the creation of citizen charters in important public services, legislation to facilitate the public’s right to information, and experiments in e-governance in sectors and departments serving business and citizens in general.

Key Words

Information, Transparency, Independence, Accountability, Regulation, Process


4. Structuring, staffing, funding requirements

Core References

Fiscal Autonomy Review: Comparative Study of Regulatory Fiscal Autonomy Around the World
October 20, 2003.
Academy for Educational Development

Compares fiscal autonomy of regulatory institutions around the world. Findings consider funding sources, how agency actions affect funding, funds stability, and funding mechanisms.

Five-Year Strategic Management Plan: 2003 – 2007
Nigerian Communications Commission

Describes the organization of the Nigerian Communications Commission and its strategic plans.

Key Words

Agency structure, Training, Accountability, Independence, Ethics


Case Studies

Better Economic Regulation of Infrastructure: Country-based Review
Working Paper No. 8, August 2013.
Australian Competition and Consumer Commission/Australian Energy Regulator

Ontario Energy Board: 2012-2015 Business Plan
Ontario Energy Board

Annual Report & Financial Statements 2002/03
OUR, Kingston, Jamaica, September 2, 2004.
Office of Utility Regulation, Jamaica

Framework for Infrastructure Regulation
Tata Energy Research Institute, New Delhi, India, 2000. Purchase.
Sundar, S. and S. K. Sarkar

Business Plan 2000-2002
Uganda Communications Commission