Regulating Through the Back Door: Understanding the Implications of Institutional Transfer

Jerusalem Papers in Regulation & Governance
29 February 2012

This paper explores ideas of regulatory diffusion and transplant. I suggest that the existing literature, which focuses on channels of diffusion and macro-contextual variables of sectors and countries, insufficiently accounts for how the nature of institutional outcomes are shaped by the way regulatory agencies are adopted and embedded into national political economies. In particular, using the case of Indian electricity regulation, this paper suggests that when adoption is driven less by national policy choices, and more by the role of external actors, such as multilateral donor agencies, there is little scope for ex ante deliberation of the role regulatory agencies can and should play within national governance systems. Instead, the functioning of regulatory agencies are better explained by ex post adjustment, as agencies seek to accommodate existing political pressures, accompanied by efforts to explain and justify the foundational myth on which regulator adoption was based. Regulatory outcomes are then incompletely explained by macro-context and institutional form alone, but instead require understanding micro-details of local political and institutional arrangements.

This argument is explicated with reference to the process through which regulatory agencies entered the Indian electricity sector, and further detailed with reference to tariff setting and public participation processes in three Indian states. While tariff setting illustrates ex post rationalization of decision making that remains deeply politicized – in contradiction to the founding narrative when regulatory agencies were created – public participation processes show that the introduction of regulators can introduce a ‗policy irritant‘ that stimulates creation of a new political space in Indian electricity governance. Based on these discussions, the paper argues for attention to micro-politics and local specificities of the process through which regulatory agencies are embedded in national political contexts. This argument serves as a corrective to the literature that currently focuses dominantly on ex ante country and sector conditions in seeking to explain regulatory transplant and performance.