Independent Regulatory Agency: Delegation of Powers

Abstract

The existence of independent regulatory agencies - independent bodies which operate at arm´s length from the government and which are not directly accountable to the voters or their elected representatives - is still the object of intense debate. Independent regulatory agencies emerge in democratic policies across the world. It is difficult to find de lege ferenda rationale for their existence in a democracy where public policy is supposed to be made by electorally accountable people and where public institutions are not usually endowed with a high degree of independence. Thanks to economic theories and principles this article reveals a justification of their existence and gives arguments for their creation. The instrumental rationality problem, the problem of time inconsistency and the credible commitment problem constitute a heavy burden for government in some areas. A delegation of regulatory powers in these areas from the government to an independent body represents a solution to all these problems. The knowledge gained from economic theories can be beneficial for comprehension of the functioning of independent authorities and for setting their institutional legal framework.

Keywords: independent regulatory agency, IRA, delegation of power, transaction costs, instrumental rationality, time inconsistency, credible commitment