A Public Goods Approach to Regulation of Utilities
The objective of this paper is to broaden the discussion on regulation in general and on the regulation of utilities in particular. Beyond the technical complexity involved in designing and implementing regulatory interventions, we focus our attention on the conditions for achieving a fair process of regulations. Such a process takes into consideration the interest of consumers as well as those of the investors and the government. We conceptualize the problem of regulation as a problem of provision of a pure public good. Failure to provide this public good results in capture, when regulation favours implicitly or explicitly one of the incumbent parties, namely private utility operators. We consider the nature of the utilities markets after privatization which justifies the creation of regulatory bodies. We examine the cases of telecom and electricity in Argentina, Bolivia and Peru. We then introduce the notion of regulation as a pure public good. We use the standard public good framework to highlight the determinants of the supply of regulation and we further look at regulation with an institutional perspective. We next present the model of regulation by an independent agency, which is widely followed in Latin America. In this framework we also consider the tradeoffs between discretion and accountability, and introduce the notion of conflicting interest among the different actors in the process of regulating utilities. We conclude with a consideration of the limits to the formulation of regulatory policies in the context of the Latin American countries under study.