impact of regulation on sector performance is a daunting task due to both theoretical (model formulation) and empirical (data availability) challenges. From the theoretical side, the main issue is the multi-dimensionality of sector performance. At the same time, it is difficult to isolate the characteristics of the regulatory agency that really influence sector outcomes. On the empirical side, the main problem is the lack of consistent data over time and across countries. Limits to international comparisons in econometric studies are well known. Over time, changes in rules and the way information is collected and recorded also affect the quality of the available data.

The literature contains many case studies with anecdotal evidence of improved sector performance resulting from the introduction of a regulator, generally as part of a wider sector reform (Cubbin and Stern 2004), (World Bank 2010). However, there is only a handful of rigorous cross-country studies that try to isolate the impact of regulation on sector performance econometrically, even if they differ somewhat in their focus.

The first two econometric studies are centered in Latin America – Guasch (2004) and Andrés, et al. (2008) – and share the same database of structural variables including measures of regulatory governance and regulatory substance for 1,000 infrastructure concession contracts (including electricity) in 17 Latin American countries. Regulatory governance is captured by variables depicting existence of regulatory agency, instrument used to create it (law, decree, other), autonomy (part of a ministry or autonomous body), and length of regulators’ mandate (5 years or more vs less than five years). Regulatory substance is reflected in the choice of tariff regime in place: price cap, rate of return or hybrid.

Guasch (2004) focusses on the high incidence of renegotiation of concession contracts in infrastructure sectors, and finds that – among other explanatory variables –the regulatory framework significantly influences the incidence of renegotiation in two main ways. One is through the quality of enforcement, as measured by the existence and autonomy of a regulatory agency—both decrease the probability of renegotiation. The other is through the allocation of risks, as measured by the type of regulation. Price-cap regulation—in which the operator bears the risk—increases the probability of renegotiation relative to rate-of-return regulation. Moreover, the incidence of renegotiation was much higher under price-cap regulation (42 percent) than rate of-return regulation (13 percent), and when a regulatory agency was not in place (61 percent) than when one was in place (17 percent). Finally, renegotiation was more likely when the regulatory framework was embedded in the contract (40 percent) than when embedded in a decree (28 percent) or a law (17 percent).

Andres et al. (2008) center on the impact of privatization on performance in three infrastructure sectors (including electricity) by comparing performance trends (rather than absolute levels) before, during and after the privatization process. There are three main findings. First, regulatory and contract characteristics matter: the way privatizations are undertaken can generate significant performance differences. Second, each 19