Regulating telecommunications in developing countries : outcomes, incentives, and commitment

Regulating telecommunications in developing countries : outcomes, incentives, and commitment

The private sector invests heavily in infrastructure, makes reasonable returns, and improves productivity when regulators reduce the firm's information advantage, induce the firm (through pricing) to operate efficiently, and institute safeguarding mechanisms to protect the firm against expropriation of assets or quasirents.

In response to the recent wave of privatizing and regulating monopolies in developing countries, Galal and Nauriyal evaluate the impact of different regulatory schemes on private sector behavior in the telecommunications sector in seven countries.

They find that regulation is most effective --- meaning, it results in substantial investment by the private sector, reasonable returns on this investment, and greater productivity --- where the government/regulators reduce the firm's information advantage, induce the firm (through pricing) to operate efficiently, and institute safeguarding mechanisms to protect the firm against expropriation of assets or quasirents.

Conversely, where the government/regulators fail to resolve information, incentive, and commitment problems, private sector returns are relatively high, and investment and productivity are relatively low.

This paper --- a product of the Finance and Private Sector Development Division, Policy Research Department --- is part of a larger effort in the department to investigate the influence of institutions on policy outcomes. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. The study was funded by the Bank's Research Support Budget under the research project "Changing Role of the State" (RPO 67969). Please contact Paulina SintimAboagye, room N9059, telephone 2024738526, fax 2025221155, Internet address psintimaboagye@worldbank.org. (27 pages)

The full report is available on the World Bank FTP server

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