Ploys or Intended Effects?

The last quarter of a century has seen two broad waves of regulatory reform. The first wave, which started in the 1980s, was predicated on the assumption that privatization and liberalization would engender increased economic efficiency, and that this twin process would involve considerable de-regulation. In the event this proved both unrealistic and impractical. Regulatory agencies that were established on a temporary basis have turned into permanent organizations, and the establishment of effective competition in markets that were previously dominated by public monopolies has required considerable re-regulation. The second, current, wave of regulatory reform duly focuses on the proper design of regulatory authorities, and in particular the question of agencies ’ independence from political interference. The present paper reviews the normative and positive literature on independent regulatory agencies, addressing why they have been deemed desirable and why they have been established. The motive for establishing independent regulators is directly related to how they are expected to operate, and in turn how they in actually operate. In contrast to earlier suggestions that degrees of independence reflect the quest for efficient regulation, or that they reflect compromises between commitments to credibility and political oversight, the present paper suggests that regulatory reform may be driven other motives as well. To some extent, regulatory independence reflects the degree to which politicians seek to bind their successors or obfuscate the responsibility for risky decisions. If so, the democratic challenge is deliberate institutional choices, not runaway agencies