Answer:
Around the world, governments perform three main functions: they tax, they
spend, and they regulate. And of those three functions, regulation is the least
understood. It should not be surprising that regulation can produce harmful
effects when it is poorly designed or executed. For example, an annual World
Bank survey, Doing Business, has documented how too much general business
regulation has hurt economic growth in many developing countries. Regula-
tion is also a major concern in infrastructure industries where, for reasons of
natural and sometimes unnatural monopoly, there are often extensive regula-
tory controls on maximum allowed prices, minimum quality standards, and
access conditions to a common network. With the creation of more than 200
new infrastructure regulatory entities all over the world in the past 15 years,
we have seen that the actions of the regulators can have major effects, both
good and bad, on the performance of the sectors that are being regulated.
It is important to remember that the basic motivation for creating new
infrastructure regulatory systems was to establish institutions that would en-
courage and support stable and sustainable long-term economic and legal
commitments by both governments and investors. It was hoped that by pro-
moting credible commitments on both sides, investors would then have ade-
quate incentives to commit their capital to new investments to benefit ex-
isting and new customers. Despite these good intentions, there is now
considerable evidence that the expectations of both investors and con-
sumers—the two groups who were supposed to have benefited from these
new regulatory systems—often have not been realized for both regulatory
decisions and sector outcomes.