One paper presented at the recent Second Annual Conference on Competition and Regulation in Network Industries in Brussels addressed the topic of regulation as an imperfect institution.
The abstract seemed a bit of a mess, but I’m interested in views of utility regulation as an economic institution (particularly from a new institutional economics approach, but also more broadly) so I thought I’d take a look at the paper. The abstract suggested I’d see how “regulation may not fail in theory or practice as much as it is failed by us.” Do we have a duty to the institution? I was intrigued.
Unfortunately, I could only make it to page three before the following paragraph-and-a-half finally stopped me:
Markets emerge from a brew of economic want and political will. Free markets are not free by desire or design. Markets are an artifact of nonmarkets, owing to the political economy because they are allowed to exist under the legitimacy of the state. Market structures (eggs) may call for regulation (chickens) and regulation in turn will shape market structures. Rather ironically, structure and regulation are essential for “liberalized” markets.
Economic exchange begets market structures and rules, which beget markets, which beget market failure, which begets regulation, which begets regulatory failure. Regulatory failure can beget regulatory reform or market reforms leading to changes in the rules that may result in failures of restructuring.
If I’m following the above, because chickens and eggs are allowed to exist under the legitimacy of the state, they are non-market artifacts of political economy. The eggs call for chickens, but chickens in turn shape the eggs. Then a lot of begetting happens, which seems like the sort of thing that should be involved in the chicken-and-egg relationship, but the connection is a little hazy.
Let’s get to the point: am I getting an omelet or not?
(Maybe it gets better after page three – scanning ahead the rest of the text looks somewhat better – but I think my time is better spent elsewhere. By the way, other papers presented at the conference appear much more useful.)