International Handbook of Network Industries
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International Handbook of Network Industries

The Liberalization of Infrastructure

Edited by Matthias Finger and Rolf W. Künneke

This extensive, state-of-the-art Handbook provides a comprehensive overview of the various experiences of liberalization across different sectors, regions and disciplines.
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Chapter 5: Evolution and Design of Institutions Supporting Liberalization

John Groenewegen


John Groenewegen INTRODUCTION The transformation in network industries of state-owned enterprises directed by ministries to private firms competing in markets and regulated by public agencies, is a process of institutional change designed with the purpose of increasing efficiency. When network industries are liberalized and competition by entry and exit of firms is made possible, the privatization of previously state-owned firms and a process of deregulation and re-regulation usually come with it. When, in liberalized markets, competition has become the name of the game, such markets need to be supported by other institutions than was the case under state-controlled coordination. Markets in which consumers can choose between competing suppliers need the support of specific laws and regulations that protect property rights and enforce contracts. Competition in network industries also needs supportive values and norms that are internalized into the behaviour of the actors and that support the competition and corporate laws, the role of regulatory agents, the role of private firms and their way of doing business. Finally, markets in liberalized network industries need the right supportive private governance structures like entrepreneurial firms, (long-term) contracts and strategic alliances that coordinate transactions. In this chapter we discuss the different institutions that support liberalized network industries; who can and should design the institutions and to what extent are institutions not the result of purposeful design but more or less spontaneously evolve? In the first section we discuss different types of supportive institutions ranging from values and norms, via laws and regulations to public...

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