a margin to improve the extent to which the actors of the sector can be held accountable even when institutions are weaker than desirable. This is something policy makers are only starting to internalize in their regulatory evaluations and decisions (Estache (2016)).

An older key insight is that some of the rules of the regulatory game may have to be differentiated for public and private operators. When public enterprises are in charge, even when they are corporatized (i.e. run as private enterprises with strong, accountable corporate boards), the main risk is probably an increased political interference with regulatory decisions, or simply the temptation not to separate the policy and the regulatory functions. This often reduces revenue and when interference results in overstaffing, it increased costs. The upshot, however, is that, just as in the case of information asymmetries managed by private operators, the outcome tends to be a cost that is not minimized and a demand that may not be met, whether the operators’ motive is profit or any combination of social or political objectives. Additional differences relevant to the design of regulation when accountability is limited include the following. Public operators make fewer efforts to collect bills or to recover costs since the incentive to maximize revenue is lower. Private operators are more likely to have to pay their fines and penalties for unexplained cost increases. Public operators are more likely to be able to rely on subsidies to recover their costs. Private operators are likely to rely on higher discount rates (i.e. expected rates of returns) to assess the desirability of investments. And fifth, the scope to access private financing is, of course, quite different, even if, increasingly, corporate bonds are becoming an option in regulated industries.

Besides these institutional drivers of accountability, it is essential to recognize the role of poor data quality, poor accounting practice and a poor appreciation of this information in any effort to reduce corruption and underperformance in the sector. Cost mark-ups tend to either finance political parties or allies or simply lead to profit sharing between private operators and politicians, legally when cost increases are linked to higher taxes, or illegally when cost increases lead to bribes. In both cases, it starts at the procurement stage for many activities (from construction to maintenance and outsourcing). More transparency about this would probably reduce the scope for political interference but this has not yet been validated empirically in any coherent way. It is based more on anecdotal and casual evidence. Moreover, when political interference cuts across the board, there is little that a single sector can do on its own to change the incentives. This is not just about including a risk premium in the cost of public or private capital, it is about the choice of incentives to be factored into the details of regulatory design.

In practice, all the evidence available from international watchdogs concerned with corruption suggests that accountability gaps continue to be an issue which regulators have not been able or willing to address properly in developing and emerging economies. (And some would argue that many 41