Introduction
Recall that a basic problem of regulation is to overcome to the extent possible the asymmetries between the government and the operator.178
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See Chapter I. But even if regulatory instruments overcome this asymmetry, it is still important to ensure that the actions of the government and the regulator match the long-term interests of the country’s citizens. It may be tempting, for example, for politicians to pressure the regulator to pursue short-term political interests that hurt the longer-term interests of customers of the utility services.179 179 [HIDE]
This highlights what are in essence two principal-agent problems, one between the government (acting as the principal) and the regulator (acting as the agent) and another between the public (acting as the principal) and the government (acting as the agent). To overcome such problems to the extent possible, countries adopt rules for regulation and government institutions that encourage regulation under the law,180 180 [HIDE]
See Chapter I Section I for a discussion of the economic foundations of law. as well as independence, transparency, predictability, legitimacy, and credibility of the regulatory system, to help ensure that regulation serves the long-term interests of the country.
This chapter addresses these issues. It first examines institutional design issues, such as the role of the regulator. Then review of regulatory decisions, ethics and stakeholder relations are discussed. Following this chapter’s narrative is a list of references, organized by topic.
