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Regulatory Design in the Water Sector: Technological or Institutional Constraint?

Regulatory Design in the Water Sector: Technological or Institutional Constraint?. Aleksandra Peeroo University of Paris – Centre d’Economie de la Sorbonne Maison des Sciences Economiques 106-112, bd de l’Hôpital 75013 Paris Aleksandra.Peeroo@gmail.com.

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Regulatory Design in the Water Sector: Technological or Institutional Constraint?

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  1. Regulatory Design in the Water Sector:Technological or Institutional Constraint? Aleksandra Peeroo University of Paris – Centre d’Economie de la Sorbonne Maison des Sciences Economiques 106-112, bd de l’Hôpital 75013 Paris Aleksandra.Peeroo@gmail.com Aleksandra Peeroo NGI Stock Taking Workshop 2009

  2. Regulatory Design in the Water Sector: Technological or Institutional Constraint? Structure of presentation • Introduction: Aim and motivation • Section 1: The ABC of regulatory design • Section 2: Theoretical framework: technological and institutional perspectives • Section 3: Application: propositions and empirics • Section 4: Results and discussion Aleksandra Peeroo NGI Stock Taking Workshop 2009

  3. Regulatory Design in the Water Sector: Technological or Institutional Constraint? Aim and motivation • Aim: provide an answer to the question, what constrains regulatory design • Motivation: • Literature on role of institutions and technology on regulatory performance (Shirley 2002; Nelson, Sampat 2001) • But little on regulatory design: mostly LDC, regulatory agency, none water sector • Important for regulatory reform in times of liberalization Aleksandra Peeroo NGI Stock Taking Workshop 2009

  4. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 1. The ABC of regulatory design • What is it? (Joskow, 1998; Guasch, Spiller, 1999; Estache, Martimort, 1999) • Basic regulatory instruments: specific legislation, decrees, contracts, administrative procedures • Regulatory agency • Levels of distribution of regulatory power • Single- vs multi-sector regulation • (Not here: regulatory mechanisms design: fixed price vs cost plus) Aleksandra Peeroo NGI Stock Taking Workshop 2009

  5. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 2. Technological vs institutional perspectives • Technological view: characteristics of WS • AS: sunk costs, eco of scale / density  very “natural” monopoly • Uncertainty: underground assets • Frequency: very long lifecycle of assets • Local utility • No major technological change Aleksandra Peeroo NGI Stock Taking Workshop 2009

  6. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 2. Technological vs institutional perspectives • Impact on RD • Natural monopoly  multi-sector regulator (Joskow 1998) • AS  risk of gvt opportunism  credibility needed (Savedoff, Spiller 1999) • Technological change  adaptation needed (change of market conditions (Bickenbach 2000)), single-sector (Joskow 1998) • Critical technical functions  need support (F/G/K 2005; K/G/M 2009) Aleksandra Peeroo NGI Stock Taking Workshop 2009

  7. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 2. Technological vs institutional perspectives • Institutional view: points of analysis • Political system: unitary vs divided gvt (McNollgast 1987, 1989; Levy, Spiller 1994; Spiller, Tommasi 2005) • Degree of centralization: federal vs central state (Weingast 1995) • Checks & balances: judiciary (Spiller), arbitration • Supranational institutions: shift of competence from national to higher level (Bickenbach 2000) • (Not here: informal norms, social interests, administrative capabilities (North 1990)) Aleksandra Peeroo NGI Stock Taking Workshop 2009

  8. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 2. Technological vs institutional perspectives • Institutional view: impact on RD • Unitary vs divided gvt  be aware of influence on credibility! • Federal vs central state  distribution of regulatory power (level) • Judiciary, arbitration  provides regulatory credibility • Supranational institutions  change in regulatory design Aleksandra Peeroo NGI Stock Taking Workshop 2009

  9. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 3. Propositions and empirics • Propositions technological view • General idea: convergence of regulatory design • Natural monopoly and absence of technological change  multi-sector regulator or at least no single-sector regulator • AS  risk of gvt opportunism  credibility needed  solution: separation of regulatory powers (e.g. quality, tariffs, environment) • Uncertainty  transparency obligations (reports) • Frequency  rigid regulatory design • Local utility  regulatory institutions on local level; benchmark competition Aleksandra Peeroo NGI Stock Taking Workshop 2009

  10. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 3. Propositions and empirics • Propositions institutional view • General idea: divergence of regulatory design • Unitary vs divided gvt  rigidity and safeguards vs flexibility and less safeguards • Federal vs central state  decentralization and variety vs centralization and homogeneity • Judiciary, arbitration  when strong  more flexible regulatory design Aleksandra Peeroo NGI Stock Taking Workshop 2009

  11. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 3. Propositions and empirics • Empirics • Use of case studies • France, England & Wales, Germany, the Netherlands • Presentation of institutional endowment • Analysis of regulatory design Aleksandra Peeroo NGI Stock Taking Workshop 2009

  12. Regulatory Design in the Water Sector: Technological or Institutional Constraint? 4. Results and discussion • Technological view • AS  need for separation of regulatory powers  yes, e.g. E&W: separation of environmental, economic, and quality regulation • Locality  no, not always local regulation! • Multi-sector regulation  no, regulatory agencies rare • Institutional view • Political system  yes, e.g. E&W: rigid regulation (licenses) because of unitary gvt • Level of regulation according to degree of centralization  yes, e.g. Germany, France • Technology matters but institutions prime! Aleksandra Peeroo NGI Stock Taking Workshop 2009

  13. Regulatory Design in the Water Sector: Technological or Institutional Constraint? • Thanks for your attention! Aleksandra Peeroo NGI Stock Taking Workshop 2009

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