Infrastructure Regulation: Promises, Perils and Principles

For much of the 20th century and in most countries, network utilities, such as telecommunications, electricity, natural gas, railroads, and water supply, were vertically and horizontally integrated state monopolies under ministerial control. This approach often led to extremely weak infrastructure services, especially in developing and transition economies. Common problems included low productivity, high costs, poor quality, chronic revenue shortages and falling investments, long waits for and shortages of services, and nonpayment for and theft of services. As a result of these problems, public policies toward infrastructure have undergone profound changes over the past two decades. This report evaluates the privatization of network utilities in developing and transition economies using three criteria: the resulting levels of investment (and thus service expansion), operating (technical) efficiency, and allocative efficiency (as indicated by the rebalancing of tariffs). This report also assesses the distributional consequences of reforms, especially their effects on basic services for poor households and other disadvantaged groups. The report suggests designing pricing policies that strike a balance between economic efficiency and social equity, developing rules governing access to bottleneck infrastructure facilities, and finding new ways to increase poor people's access to services.Regulatory Reform, Other Topics