Sustainable Regulatory Systems : Laws , Resources , and Values

Regulators frequently face difficult economic trade-offs in their decision-making. They must know how to assess the effects of policies on stakeholders under conditions of imperfect information. Part of the art of regulation revolves around understanding the linkages between choice of market structure, design of regulatory rules, and institutional requirements. In addition, different aspects of sector performance will be prioritized depending on the nation’s level of development. Three factors determine the effectiveness of independent regulatory commissions during periods of change. (1) Resources available to the organization are generally determined by the legal instrument that brought the agency into existence. Budgets require funding mechanisms and procedures promoting accountability. Resource levels and resource mix (such as the percentage of highly motivated professionals) determine the range of activities suitable for the organization. (2) The legal mandate is interpreted by the courts. Since the law itself is often the product of political compromise, initial legislation may be inadequate for the effective performance of agency duties. Agency initiatives can precede formal legislative revisions, but these are likely to be challenged by some stakeholders. (3) The values or principles supporting the agency are derived from the national culture and a shared political vision. At the birth of the agency, leaders and key professional staff may not have reached consensus regarding priorities. Agreement on fundamental principles is essential if the agency is to develop a consistent set of policies. 1 The author is Distinguished Service Professor—Economics, University of Florida, and Director, Public Utility Research Center. John Corlett, Daniel Peralta, and Mark Jamison provided helpful comments on earlier versions of this paper. Most of the supporting examples draw upon cases presented at the PURC/World Bank International Training Program on Utility Regulation and Strategy: http://www.purc.org