Regulating Infrastructure: Monopoly, Contracts, and Discretion – By José Gómez‐Ibáñez

Abstract

Following the 2000 Californian electricity crisis, the 2001 implosion of Enron, and the recent revelations that Japanese private utilities have routinely violated nuclear safety codes for the past decade, the public is understandably skeptical of private utility and infrastructure companies. José Gómez-Ibáñez's latest book asks readers to reconsider market-based contractual mechanisms for providing public utilities. These sectors include durable, often immobile, goods, which may be most amenable to natural monopolies, such as water, gas, airline, electricity, and railroad services. For Gómez-Ibáñez, infrastructure provision is a problem of long-term contracting and he openly states his preference for private contracts in these sectors. He outlines four strategies for regulating infrastructure monopolies ranging from marked-based approaches based on private contracts , to concession contracts, discretionary regulation, and finally publicly owned and operated enterprises. Through diverse comparative case studies covering extended historical periods, Gómez-Ibáñez seeks to demonstrate that non-market-based policies often result in market inefficiencies , which undermine regulatory regimes as prices rise. In some cases, this leads to state intervention, such as the expropriation and nationalization of private enterprises. Although recognizing that not all environments are conducive to private enterprise (17, 250), the book only details private market-based cases and not public enterprises. The book's largest contributions are found in its analyses of Argentina, Sri Lanka, England, and the United States. Whether it is Sri Lanka's cycle of privatization-regulation-nationalization in its bus sector or England's and Argentina's privatization of railroads and electricity, the book shows the value of the comparative approach to regulation. Few scholars have seamlessly integrated the historical, institutional, and economic threads into a comprehensive narrative, which illuminates the multiple factors in infrastructure provision. Given its breadth, this study is bound to raise further questions; three stand out. First, given its topic, it gives surprisingly little attention to the controversial politics of constructing infrastructure. There is a burgeoning literature on the siting of large-scale infrastructure and utility projects, including railroads, airports, nuclear power plants, and electrical lines,