Introduction

Summary

Using incentive theory elaborated in the 1980s to model regulation as a problem of control under incomplete information, the new economics of regulation (Loeb and Magat, 1979; Baron and Myerson, 1982; Laffont and Tirole, 1986, 1993 (hereafter LT)) has provided a useful normative framework for the reforms of public services in developed countries. However, this literature has paid no attention to the specific characteristics of developing countries.

Simultaneously, the privatization, deregulation, and liberalization movement of the 1980s which started in the United Kingdom and the United States and then extended to Europe and some countries of Latin America (Chile and Argentina in particular) has provided a lot of useful experiences. Under the pressure of international banking institutions (IMF,World Bank), developing countries have been forced to liberalize their public services as the developed world had just done.

Advisers in LDCs could rely only on the experience of the developed countries and on an intellectual framework also designed for those countries. Not surprisingly they have essentially repeated the precepts designed for the developed world and paid little attention to the characteristics of LDCs.

Some economists at the World Bank were quite aware of the risk early on and have accumulated precious knowledge on some of the leading reforms in the world often hidden in internal reports but increasingly available in academic publications. In terms of countries, Argentina and Chile have generated more than their fair share of empirical assessments of regulatory problems resulting from reform.