Wednesday, March 28, 2012

Policy and Regulation for Sale (by Francesc Trillas)

It is unfortunately frequent to receive news of corruption and collusion between business and politics in many countries. We run the risk of becoming accostumed to them. The treasurer of the Conservative Party in the UK had to resign because he was caught selling (at a high price) meetings with the Prime Minister and leader of his party. In Catalonia, several people were arrested in connection to allegations of collusion between government and firms to arrange concession contracts in the Vehicle Inspection sector. Daniel Montolio, Néstor Duch and myself wrote some time ago (in an article published last year in Revista de Economía Aplicada) about the propensity of this sector to corruption, but probably nobody paid attention (by the way, we approached the industry to ask for funds to continue our research on vehicle inspections, but got nowhere): "Given the very special nature of this industry, it is important to provide independent and objective quantitative assessments of the desirability of regulatory reforms. Consumers (car owners, not the overall population) devote a small proportion of their expenditure to vehicle inspections: in our sample units, about €30 for inspections that take place every one or two years, depending on the age of the vehicle. Therefore, inspection costs for consumers do not trigger the level of public awareness of, say, public utilities rates such as electricity or water. However, given their compulsory nature, vehicle inspections are a steady source of cash for firms operating in a sector in which demand is growing. We thus conjecture that firms have a far greater influence in policy design and implementation than consumers. Therefore, there is high potential for regulatory capture. The complexity of the interaction between firms and policy makers increases with the presence of multinational operators. How to design national or even (in decentralized countries like Spain) regional regulation to benefit consumers when some of potential firms are powerful multinationals is an important question"

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