infonet-economy

The various actors in the regulated industries relate to each other within a broader
institutionalf ramework, i.e., by way off ormal and informal rules. An important
role in the implementationo f liberalizationp rocesses is given to regulation and thus
to regulatory institutions. The rationale for regulation is its positive effect on society
by correcting market failures. But regulatory intervention also causes costs which
we call "costs ofregulatory governance". These costs resultfrom negative consequences caused by regulatory requirements and from the implementation of regulatory instruments. These costs will depend upon the formal and informal rules among the involved actors, upon the allocation of property rights among these actors, as well as upon the various principal-agent or more generally contractual relationships
among these actors. We distinguish between direct and indirect costs of regulation:
Direct costs occur in relation with the institutional design of the regulatory framework and the behaviour of actors. Indirect costs resultfrom distorted incentives and finally turn out in an inefficient supply ofgoods and services. Using the example of the Swiss postal market we offer a first outline of a possible application of the framework. In this article we neither intend to quantify regulatory costs nor do we
question regulation per se. We rather present a qualitative framework which helps
to structure a discussion about regulatory challenges in network industries.