The December issue of the Review of Network Economics is a special issue on regulation in network industries. I’ll have more to say on some of the other papers later, but for now I’d like to recommend reading Ray Gifford’s paper on regulatory impressionism. It’s a really superb analysis of what regulators can and cannot do. Ray reminds us that the institutions we inherit from our predecessors matter a great deal in determining our policy choicese, and that we have to address regulatory institutions as they are, not as we wish they were or as some stereotype of rent seeking. His conclusion certainly gives me pause:
Truth be told, state regluators do not have the time, resources, or abilities to innovate or found new schools of competition policy … In the end, regulators cannot do more than they can do. Burdened with multiple subject-matter jurisdictions, limited background and training in the subject matter of network econoimcs, limited resources, and limited means to get the “right” regulatory answers, it is a wonder that state regulatory institutions can manage the job at all.
This is an important paper, one that I’ll reread several times, and one that I recommend to all interested in the reality of regulation of network industries.
I think this conclusion sets the bar too low for public officials. Low expectations result in low outcomes.
We, as taxpayers and citizens, expect regulators to get the policy right most of the time, to find out how to do so, or make the correct tradeoffs. That’s their job. Why do we have to accept low performance from them?
My customers, users, and manager expect my best. We must challenge our predecessor’s work when necessary, not avoid it. That’s one reason that makes the private produce better quality at lower prices. I have to make tradeoffs and resolve conflicts among competing groups. I suspect my situation is not that different from others in the private sector.
I like this article, and I mentioned it on my “bottomline” weblog.
I think it paints too optimistic a picture of state regulators, though. The more local the regulatory commission, the greater the share of influence of special interest money and lobbyists.