Who Should Appoint Regulators: Governments or Parliaments?

Posted by D. Daniel Sokol

Pedro Barros of New University of Lisbon - Faculdade de Economia asks Who Should Appoint Regulators: Governments or Parliaments?

ABSTRACT: The last two decades were characterized, in several countries, by the creation of several sectoral regulators and of competition authorities. An important issue in their statutes is to whom regulators are accountable: the Government or the Parliament. There are several legal arguments in favor of one or the other solution. We focus here in a different line of argument: because who appoints the regulator may determine its objective function, Government or Parliament appointment will lead to different outcomes. We identify under which conditions each possibility dominates. Several factors contribute for the relative welfare assessment: whether the regulator acts as a perfect agent of the nominating institution, or not; whether majorities are strong, or not; whether parties are industry-friendly or consumer-friendly; and whether there is a dominating party, or not.