Economic Regulators Nicky Cusworth Chair Economic Regulation - - PowerPoint PPT Presentation

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Challenges for Economic Regulators

Nicky Cusworth Chair Economic Regulation Authority

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Presentation outline

• Background – how and why we got here
• Architecture – regulatory principles and processes
• Challenges for regulators (and de-regulators!)
• Conclusions

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Economic regulation background

• An ancient challenge
• “Golden Age”
• Stagflation
• Micro-economic reform
• Financial deregulation
• Labour market deregulation
• Import tariffs and quotas
• Tax reform
• Government trading enterprises
• Competition policy

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Elements of f National Competition Policy

• Limiting anti-competitive conduct
• Reforming regulation which unjustifiably restricts competition
• Reforming the structure of public monopolies to facilitate

competition

• Providing third-party access to certain facilities that are essential for

competition

• Restraining monopoly pricing behaviour
• Fostering "competitive neutrality" between government and private

businesses when they compete

• Source: National Competition Policy Review 1993 (“The Hilmer Report”)

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Economic Regulation Today what and why?

What

• Rules, usually set in law, governing

what businesses can and cannot do in their dealings with customers, employees, suppliers and government. Why

• Economic
• Market failure
• Economic policy
• Social
• Consumer protection
• Minimum standards
• Environmental
• Externalities (market failure)
• Protected values

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Economic Regulation how?

Policy Makers Government Agencies Policy Advisors Political advisors Policy agencies Stakeholders Think tanks/academics Implementation Independent regulators Government departments Local government Professional associations Appeals and Enforcement Courts Tribunals Regulators

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Economic Regulation Authority

• Regulates access to monopoly infrastructure
• licenses service providers
• monitors and regulates markets
• conducts inquiries

(when referred by government)

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Long-term interests

• f

f consumers

• “to benefit the WA community by promoting an efficient and

customer-focused economy”

• Efficiency challenges
• Productive
• Allocative
• Dynamic
• Social “Public” goods and services
• Long-term viability of service providers

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Market failure

• Public goods
• Externalities
• Market power
• Imperfect information

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Challenges: policy

“People Respond To Incentives”

• N. Gregory Mankiw’s Fourth Principle of Economics
• Why aren’t we there yet?
• Goals – what should we be trying to do?
• Process – how do we get there?

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Challenges: consumers

“People Respond To Incentives”

• N. Gregory Mankiw’s Fourth Principle of Economics
• What do consumers want?
• How do consumers behave?
• Behavioural economics

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Challenges: producers

“People Respond To Incentives”

• N. Gregory Mankiw’s Fourth Principle of Economics
• Which incentives?
• Complexity
• Litigiousness

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Challenges: regulators

“People Respond To Incentives”

• N. Gregory Mankiw’s Fourth Principle of Economics
• Perverse incentives
• Technocracy
• Information asymmetry
• Stakeholder engagement
• Independence
• Financial
• Policy role?

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Challenges: markets

“People Respond To Incentives”

• N. Gregory Mankiw’s Fourth Principle of Economics
• Regulatory models based on fairly static and predictable markets
• Technology
• New markets with new ways of creating value

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Types of f goods and services

Private Goods Food, clothes Mixed or “Club” Goods Pipelines, cinemas, cable TV Public Goods Free to air TV, street art, defence Common Property Fisheries, water resources

Non-Excludable Excludable Rivalrous Non-Rival

To benefit the WA community by promoting an efficient and customer-focused economy

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To benefit the WA community by promoting an efficient and customer-focused economy

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Conclusions

• Looking back
• What worked
• What didn’t
• Looking forward