electorate. Lack of accountability in the use of subsidies to achieve private goals, such as political dominance over the sector, may be one of the most difficult problems to overcome when designing a new tariff structure in infrastructure. This is why renegotiations of contracts, for instance, so often result in increases in subsidies to investors to protect users from initially scheduled tariff increases. These aspects lead to a lack of credibility to implement screening mechanisms (sophisticated tariff schemes) or the usage of social program databases as a proxy of affordability issues. The difficulty of securing fair and accountable use of subsidies under club-leadership may also lead to difficulties in the use of prices for demand management. Manipulation of subsidies impedes the signaling effect of prices and thus the benefit of markets.

**_Oversight and regulation:_** Political dominance over all institutions tends to be the norm under club leadership in politics, including regulatory institutions initially intended to be independent. The loss of actual control over tariffs can have painful long-term consequences, as prices and investments decisions become disconnected. Public investment in infrastructure may be kept low, unless it serves the interests of the regime (highways for military operations, for example). Information about sector performance and regulatory decisions is likely to be kept confidential or at least blurred to hinder insights into the regime’s performance.

# **3.3. Industry‐friendliness for party revenues and/or personal benefits in the private sector**

Politicians sometimes reveal a very strong industry-friendliness. The need for campaign funding may be one explanation. Another is that some politicians might want to use their time in political office to expand their own or their allies’ opportunities for private sector positions. While the results in terms of industryfriendliness might be similar, the literature suggests that employment patterns with career opportunities for politicians and regulators—often referred to as “the revolving door”—is less of a welfare-challenge than various forms of lobby pressure or strategic influence from the private sector.<sup>33</sup> What are the likely impacts of industry-friendliness for infrastructure governance?

_Table 4. Likely consequences of overly industry-friendly politics_

|**Strategic planning: Identification**<br>**and prioritization of projects**| Procurement process may veer toward supporting interest groups<br> Technology and project size may be influenced to less efficient<br>solutions|
|---|---|
|**Market structure, entry and**<br>**evolution**| Protecting incumbents from market competition, supporting<br>protectionist policies<br> Limiting public investment in common facilities for market<br>competition|
|**Mode of service provision: SOE,**<br>**PPP**| Favoring specific providers (incumbent, new entrant, local, foreign)<br> Inefficient risk allocation: risk is shifted to the state, to the benefit of<br>serviceproviders|
|**Pricing and subsidies**| Consumption subsidies<br>`o`<br>for users who already have access, instead of access subsidies<br>`o`<br>for selected industries<br> Tax exception for suppliers<br> Lack of interest in fightingnonpayments and losses(theft)|
|**Oversight and regulation**| Industry‐friendly terms may be hidden in contracts<br> Implementation and enforcement may be delayed if reform increases<br>costs for the industry. Low sanctions for contract violations.|

> 33 For an overview of this literature, see Dal Bó (2006).

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