Independent Utility Regulators: Lessons from Monetary Policy

Economics

Regulation Initiative Working Paper Series

2003

This paper explores the similarity and difference between the credibility problem of monetary policy and the under investment problem of price regulation. In both cases reputational solutions are possible, provided that the policymaker is sufficiently far-sighted. But even if regulators are far-sighted, this solution to the investment problem is undermined if capital depreciates slowly. Flexible commitment rules are difficult to monitor and sustain as reputational equilibria. These considerations make the Rogoff-delegation solution to the regulatory commitment problem espcially attractive. The paper concludes with a short discussion that links these theortical considerations to the empirical literature on utility regulatory regimes.

C72, E61, L51

Regulation Initiative (closed)

52

Regulation Initiative Working Paper Series

No