Sunday, January 11, 2015
Strategic delegation of regulatory sovereignty
The jurisdictional location of the regulation of public utilities went at the end of the XIX century from the local level to the state level in the United States, more for political reasons than for technological reasons. It was an example of strategic delegation of regulatory sovereignty. Instead of delegating into an independent regulator, municipalities delegated into the states, because these provided a calmer regulatory climate that made it possible to assess the trade-offs involved in the regulation of utility industries such as gas or electricity. According to Werner Troesken, Mancur Olson argued that over time institutions tend to ossify and slow economic growth as entrenched interest groups work to secure a greater share of society’s resources. Olson’s work suggests that transitions in regulatory and governance regimes—whether from market-oriented to statist, or vice versa—can dramatically improve the operation of markets. Troesken argues that technological and ideological change can only partially account for the circularity of public utility regulation over time (from market to state, from one jurisdiction to another). Olson’s theory of institutional ossification, which suggests that occasional regime changes are desirable in public utility markets, provides a more complete explanation. I believe that a similar argument could be used today to transfer more regulatory sovereignty from the member states of the European Union to the European level. This level has already an important role, but it still leaves a lot of discretion to the states. If we focus on the case of the Spanish electricity reform, we realize that the national polity has become unable to balance the different objectives in a reasonable and stable way. This adds to the many technological reasons for which regulatory problems go beyond national borders. Paradoxically, the lack of development of a European demos could be beneficial to develop a better institutional apparatus in a calmer regulatory climate.