Independent Regulators: Theory, Evidence and Reform Proposals

Abstract

Regulatory independence has been proposed as a mechanism to alleviate the commitment problem associated to the sunk nature of investments in network industries, including telecommunications. This paper summarizes the authors’ and others’ work in this field (in a pause to take stock of several years of research), shows new data on the practice of regulation in Latin American telecommunications until 2010, and discusses reform proposals for regulatory agencies. The institution of regulatory independence has costs as well as benefits; the positive and significant impact on industry performance is however most likely quantitatively modest. As a result of the empirical evidence and the assessment of the literature, the reform proposals are meant to improve the effectiveness of the institution.

Keywords: regulation, independence, strategic delegation, telecommunications

JEL Classification: L51