Regulatory Governance Costs in Network Industries: Implicatins for postal Regulation

The various actors in regulated industries relate to each other within a broader institutional framework, i.e. by way of formal and informal rules. An important role in the implementation of liberalization processes is given to the regulation and thus to regulatory institutions. Regulation should have positive effect on social welfare. But state intervention also causes costs which we call costs of regulatory governance. These costs result from negative consequences caused by unnecessary regulatory requirements or from the implementation of inappropriate regulatory instruments. According to new institutional economics, these costs will depend upon the formal and informal rules among the involved actors, upon the allocation of property rights among these actors, as well as upon the various principal-agent or more generally contractual relationships among these actors. In this article we define an analytical framework of costs of regulatory governance. We distinguish between direct and indirect costs of regulation: Direct costs occur in relation with the institutional design of the regulatory framework and the behavior of actors. Whereas the indirect costs arise because of false incentives and finally turn out in an inefficient supply of goods and services. Using the example of the Swiss postal market we give an outline of a possible application of the framework.