The Formal Independence of Regulators: A Comparison of 17 Countries and 7 Sectors

Abstract

This article seeks to explain the pattern of delegation to independent regulatory agencies in Western Europe. Two types of arguments are advanced to explain variations in the formal independence of regulators. Firstly, the need for governments to increase their credible commitment capacity may lead them to delegate regulation to an agency that is partly beyond their direct control. Secondly, delegation may be a response to the political uncertainty problem, which arises when governments are afraid of being replaced by another coalition with different preferences, which could decide to change existing policy choices. In addition, veto players may constitute a functional equivalent of delegation, since they influence policy stability and therefore tend to mitigate both the credibility and the political uncertainty problems. These arguments are consistent with the results of the empirical analysis of the formal independence of regulators in seventeen countries and seven sectors.

Does Regulatory Independence Translate into a Higher Degree of Liberalization? - Evidence from EU Energy Regulators

“…In line with the uncertainty hypothesis, different studies employing his indicator reveal a higher regulatory formal independence when the level of political uncertainty increases (Gilardi, 2005a;Hanretty and Koop, 2012) (and, moreover, a higher basic inclination of governments to install autonomous authorities at all (Gilardi, 2005b)). These results together with the similarities between Gilardi's (2005a) and our uncertainty measure should hence allow us to assume a correlation to exist also between uncert and the statutory independence of regulatory agencies; the first condition for valid instruments would then be fulfilled by our uncertainty proxy.…”

“…Gilardi's (2002) index comprises five dimensions determining a regulator's formal autonomy: the agency head's status, the management board members' status, the authority's relationship with government and parliament, the regulator's financial and organizational autonomy and the regulatory competencies. The degree of independence in these areas is assessed by a questionnaire answered by regulators (Gilardi, 2002(Gilardi, , 2005a(Gilardi, , 2008 were coded according to Gilardi's (2002) scale, so as to generate a comparable measure for the independence dimensions and the overall IRA autonomy. Unlike Gilardi (2002Gilardi ( , 2005aGilardi ( , 2008, who explicitly refers to electricity regulators, both Johannsen et al (2004) and CEER (2005) sent their questions to the CEER member authorities responsible for energy regulation.…”

“…As a consequence, (ignorant) political decision makers responsible for the legal implementation of intended steps of reform have drawn extensively on the regulators' expertise (Moe, 1989;Majone, 1999;Maggetti, 2009 Gilardi (2005a) constructs his indicator as follows: a government's hazard of losing office is captured by the reciprocal of the number of years that passed between the respective cabinet's inauguration and the date it was voted out of office again.…”

“…The annual values are scores assigned to each party represented in these two political institutions according to their political orientation (ranging from 1 for right-wingers to 5 for left-wingers) weighted by their share of total seats; the period to which the standard deviation relates ranges from five years before the year of observation to one year after. In the end, both values are multiplied (Gilardi, 2005a(Gilardi, , 2005bsee Gilardi (2008, ch. 8) for further details).…”

“…Two major differences exist between Gilardi's (2005a) measure and the uncertainty proxy we construct for this paper: first, we refrain from including future years, since we query that governments really have perfect foresight; twelve month before voting, election results are often entirely ambiguous. Second, we use a rather lengthy observation period of 25 years.…”