Toward a Theory of Regulation for Developing Countries: Following Jean-Jacques Laffont's Lead
Estache, Antonio, and
Liam Wren-Lewis. 2009. "Toward a Theory of Regulation for Developing Countries: Following Jean-Jacques Laffont's Lead."
Journal of Economic Literature,
The efficient operation and expansion of infrastructures in developing countries is
crucial for growth and poverty reduction. However, recent reforms aimed at improving
the performance of these sectors have had limited success. Evidence suggests that,
in many instances, this was because the traditional regulatory theory relied on by
policymakers was not suitable for the institutional context in developing countries.
This article surveys more recent theoretical work focusing on problems with regulation
in these countries. At the heart of the survey is the work of Jean-Jacques Laffont,
who, in the last decade of his life, set about developing a theoretical framework for
regulation in developing countries. We consider the implications of his work, which
focused on the key institutional limitations faced in developing countries. We then
discuss where experience suggests that there are important omissions from this modeling,
bringing in extensions and alternative approaches pursued by other authors.
We conclude by summarizing the key ways in which regulatory policy will be different
when institutions are weak. Overall, we find that an understanding of the institutional
context and its implications are crucial when designing a regulatory framework
for developing countries.
Article Full-Text Access
Estache, Antonio (ECARES, Free U Brussels)
Wren-Lewis, Liam (U Oxford)
H23: Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
L51: Economics of Regulation
O17: Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O23: Fiscal and Monetary Policy in Development