ABSTRACT
In designing regulatory policy, market failure needs to be balanced by recognition of the likelihood of government failure. This chapter shows, since countries differ from one another in the nature and extent of government failure, workable approaches to regulation should also vary from country to country. The key to successful regulatory policy is thus to match a country's regulatory role to its underlying institutional capabilities. The chapter discusses when the importance of balancing role and capability is brought to center stage, the challenge of distinguishing between good and bad regulatory initiatives—and hence the challenge of evaluation—is a complex one. Utilities have certain characteristics that make fostering credibility especially challenging. Unlike Jamaica, the Philippines has only recently been able to put in place commitment mechanisms capable of credibly signaling that the rules of the game will endure beyond the term of the president in office. A well-designed regulatory commitment mechanism can offer the reassurance that potential investors need.
