Regulation in Services : OECD Patterns and Economic Implications

The paper looks at patterns of regulation in service industries and explores their implications for service performance. Focusing on restrictions to market mechanisms, a map of the state of service regulation in OECD countries is provided, based on data recently collected and summarised by the OECD. The paper also surveys the available cross-country empirical evidence on the effects of regulatory reform on service productivity, prices and innovation. Finally, it discusses ways in which regulation can encourage competition, efficiency and investment in those segments of the service industries where non-competitive elements persist. The main conclusions reached are: i) in the past two decades OECD governments extensively reformed regulatory environments in both competitive and network service industries, generally making them closer to market mechanisms; ii) however due to differences in initial conditions and in the pace of reform, within each service industry the dispersion of regulatory approaches is still wide and a large scope for further reform exists; iii) cross-country empirical evidence suggests that these reforms could contribute substantially to improve economic performance and living standards in the OECD area; iv) but to take full advantage of the reform process, policies in network service industries should take into due account the implications of regulatory settings for the incentives of regulated firms to invest and innovate