The Liberalization of Infrastructure
Edited by Matthias Finger and Rolf W. Künneke
Chapter 2: Basic Economic Principles of Infrastructure Liberalization: A Transaction Cost Perspective
Pablo T. Spiller LIBERALIZATION AS AN INSTITUTIONAL CHOICE Infrastructure regulations take many forms, and their appearance is not random, but rather reflect the complex interplay of a nation’s public decision-making. Thus, to understand the nature of infrastructure regulation, and, in particular, the move towards liberalization, it is fundamental to understand how public policy is undertaken in a particular environment, and how such a process interacts with the features of the infrastructure sector. In this chapter I approach infrastructure regulatory choice as an institutional choice, where by institutional choice I follow Williamson’s path-breaking work which, starting with Markets and Hierarchies, opened a new approach to institutions. In Markets and Hierarchies (Williamson, 1975) institutions are not seen simply as organigrams or chains of command whose layers are determined by the workings of communications channels. Instead, institutions are now seen as designed to deal with the basic time inconsistency inherent to most transactions, namely, opportunism coupled with the inability to write fully contingent contracts. Indeed, in explaining the differences with the prior literature, Williamson writes (1975, p. 7): (2) I expressly introduce the notion of opportunism and am interested in the ways that opportunistic behavior is influenced by economic organization. (3) I emphasize that it is not uncertainty or small numbers, individually or together that occasion market failure, but it is rather the joining of these factors with bounded rationality on the one hand and opportunism on the other that gives rise to exchange difficulties. The main point of this chapter is that...
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