Regulatory reform, development and distributive concerns

This survey reviews the relationship between regulation and distribution, focusing on regulatory reform in developing countries. The characteristics of these countries impose constraints on appropriate regulatory policies. These constraints condition: i) the terms of the trade-off between firms' rents and efficiency, including the commitment problem in the presence of sunk investments; and ii) the probability of success of removing cross-subsidies. The choices made at reforming infrastructure industries may have a significant impact on perceived distribution and development, and this impact will drive attitudes toward reform. Distributive problems are channeled through politics and institutions, conditioning the potential solutions to the commitment problem. These issues have been extensively explored by the academic literature, which provides guidance on how to address second-generation regulatory reforms.