The third force

Governments and legislatures in Europe have created or greatly strengthened independent regulatory agencies (IRAs). Yet they also retain many formal controls over those agencies. The article analyses whether elected politicians have used their powers to create IRAs in their own image and kept IRAs under tight control or whether they have allowed IRAs to become a distinct set of actors, and hence a ‘third force’ in regulation. Principal-agent theories, largely based on US experience, emphasise the importance of certain formal controls for elected politicians to limit ‘agency losses’. However, analysis of four European nations between 1990 and 2001 shows that elected politicians did not use their powers to appoint party politicians, force the early departures of IRA members, reverse IRA decisions or reduce IRA budgets and powers. Using principal-agent theory, two interpretations of this apparent puzzle are offered, each with differing implications for agency autonomy. One is that elected politicians used alternative methods of control; hence they suffered low ‘agency losses’ and IRAs in practice had little autonomy. The other is that elected politicians found that the benefits of IRA autonomy in practice and the costs of applying their formal control outweighed agency losses and hence accepted agency autonomy. A central element in the reform of market governance has been the delegation of powers by national governments to independent regulatory authorities (IRAs). Traditionally, very few IRAs existed in Europethey were very much an American specificity. Instead, regulation in European nations was dominated by two sets of actorsgovernments and regulatees. However, the 1980s and 1990s saw the creation and/or strengthening of IRAs in Europe. The most significant changes concerned IRAs for market competitiongeneral competition authorities, utility regulators and financial regulators. The spread and strengthening of IRAs raises two related sets of issues for analysis, First, why did governments delegate powers to IRAs and what form did that