Decentralized Investment and Quality Decisions In Common-Pool Networks

Investment and quality decisions in common-pool networks are typically governed by rules set by a centralized agency (either a monopoly or a regulator). In network systems where competition has flourished, decentralized solutions work better than centralized ones. Rent seeking and politicization is avoided at lower costs. Problems of free riding and entry barriers may remain, but improved self-governance procedures and antitrust supervision can handle them. Two illustrations from the electricity sector are presented here: FREBA in Buenos Aires province, Argentina; and MACQS, in New Zealand. These examples show how decentralized mechanisms may develop throughout network utilities.