Regulatory Federalism in Network Industries

This article starts by surveying the literature on economic federalism and relating it to network industries. Some new de-velopments are then added and used to analyze the determinants of speci\u85c investments and the interaction between structural and behavioral regulation. Central or federal policy making is more focused and especialized and makes it more di ¢ cult for inter-est groups to organize. Under some conditions, however, cen-tral powers will be associated with more underinvestment than local powers. The latter may use other policy objectives as a commitment device. When technology allows the introduction of competition in some segments, the possibilities for organizing the institutional architecture of regulation expand. Liberalization will typically require institutional cooperation, but cooperation has costs and may be inhibited by distributional concerns.