Regulation of Telecom in Developing Countries: Outcomes, Incentives and Commitment

Abstract

In response to the recent wave of privatization and regulation of monopolies in developing countries, this paper evaluates the impact of different regulatory schemes on private sector behavior in the telecommunications sector in seven countries. It shows that regulation is most effective (as evidenced by reasonable private sector returns. high private investment and improved productivity) where the government/regulators reduce the firm's information advantage. induce the firm (through pricing) to operate efficiently. and institute safeguarding mechanisms to protect the firm against expropriation of assets or quasi-rents. Conversely, where the government/regulators fail to resolve the information. incentives and commitment problems. private sector returns are relatively high and investment and productivity are relatively low.