Independent Utility Regulators: Lessons from Monetary Policy

Paul Levine, Paul Levine, Jon Stern and Francesc Trillas
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Paul Levine: University of Surrey and LBS
Paul Levine: University of Surrey and LBS
Authors registered in the RePEc Author Service: Paul Levine ()

No 403, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: This paper explores the similarity of the underlying economic problems that lead to the establishment of (a) independent central banks to operate national monetary policies and (b) independent regulatory agencies for telecommunications and other utility service industries. We show that, in both cases, the adoption of agencies inde- pendent of government results from the need to achieve credibility and a reputation for economically sound long-run behaviour while preserving signi¯cant discretion to handle unanticipated events. We show that this solution is superior to policy rules that are ¯xed in advance. Both for central banks and regulatory agencies, what is re- quired are institutions that provide limited and accountable discretion within a clear policy framework, for example via high levels of accountability and transparency in their decision making processes. On the basis of a review of the empirical literature, we argue that central banks with superior governance arrangements, particularly on accountability and transparency, out-perform those with inferior arrangements and we discuss how this work might be extended to utility regulatory agencies.

Keywords: Monetary policy; credibility; regulation; under-investment; delegation. (search for similar items in EconPapers)
JEL-codes: C72 E61 L51 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2003-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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