OECD regulation paper

Koske, I. et al. (2016), “Regulatory management practices in OECD countries”, OECD Economics Department Working Papers, No. 1296, OECD Publishing, Paris.
http://dx.doi.org/10.1787/5jm0qwm7825h-en


From the Introduction

1. A competition-friendly regulatory environment can help raise living standards by increasing investment, employment and productivity. A number of empirical studies have confirmed this link, including Bouis and Duval (2011), Bourlès et al. (2010), Conway et al. (2006) and Sutherland et al (2011). There are two important elements to a competition-friendly regulatory framework. First, regulations must be designed in a way that enhances competition and encourages firms to innovate and improve efficiency without being a too heavy burden on companies and, second, these regulations must be complied with or enforced in a transparent and cost-effective way. While in many areas of product markets, regulation is designed and implemented by the government, in network sectors, it is typically network regulators that take on this role.

2. Network sectors have historically been vertically integrated natural public monopolies before the introduction of competition in the market.2 In some instances the natural monopoly elements still exist such as in electricity distribution, which is why governance matters. The importance for effective regulatory institutions to facilitate the effective and fair operation of the market in network sectors is critical (Berg, 2000) in terms of investment (Jarvis and Sovacool, 2011), performance monitoring (Jenkins et al, 2007)
and ultimately outcomes of the sector (Gutierrez, 2003; OECD 2015a)

3. This paper presents a new set of indicators that measure regulatory management practices in six network sectors: electricity, gas, telecom, railroad transport infrastructure, airports and ports.3 It is meant to complement the network components of the OECD’s indicators of non-manufacturing regulation (NMR), which measure the regulations that are imposed on network sectors, by measures of the governance of the bodies that design, implement and enforce these regulations. The focus is on economic regulators, i.e. on institutions or bodies that are authorised by law to exercise regulatory powers over the sector for the purpose of setting prices and/or improving the operation of the market so that consumers have access to secure services and service providers receive a reasonable rate of return. Regulators that deal only with health, safety, or environmental issues are not considered. The indicators are computed for 33 OECD countries.

4. The remainder of this paper is organised as follows. It first briefly discusses the database that underlies the indicators and the methodology to compute them. It secondly presents the overarching indicators and presents general findings of regulatory management practices across OECD countries and sectors. It then examines the structure of regulators in greater detail in relation to their independence, accountability and scope of action. It also provides some specific country case examples. The paper is
complemented by an Annex which gives further details on the methodology used to compute the indicators.