Sunday, January 20, 2013

Optimal regulatory independence

The Spanish reform of regulatory architecture that tries to merge most sectoral regulators (except the financial ones) and the competition policy authority is still being debated in Parliament. The initial proposal has been criticized by most experts and by the European Commission, because it tries to merge too many different things, it reduces regulatory independence and it most probably will facilitate regulatory capture. I wish to focus here on regulatory independence because I know the literature well and have modestly contributed to it. Independence helps solving commitment problems and allowing the recruitment of experts, it is good in general for institutional credibility. However, it does have drawbacks, mainly in terms of coordination with the rest of government. In addition, when the policy issue must face distributional issues, it is better if it is left to normal democratic procedures, since only democracy has the legitimacy to adjudicate distributive controversies. It is then bad policy to try to homogenize the level of regulatory independence of regulatory areas that have different levels of commitment needs (because the degree of asset specificity is different) or that have different degrees of interaction with the rest of government, or where the distributive concerns are very different. Electricity and telecommunications in Spain, for example, should have different degrees of regulatory independence, and not a common, low level of independence as the one planned by the Spanish government in the current reform proposal.

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