The role of governmental commitment on regulated utilities

Abstract

Regulation is generally interpreted as a relational contract between governments and private companies. Besides, regulation plays either a positive or a negative role in infrastructure development. This article is intended to understand the hindrance to stable policies in the regulation of network infrastructures. An original model where governments have a conflictive relationship with regulated companies was developed. The governmental opportunistic behaviour, which undermines the regulatory independence, was introduced in an infinitely repeated game. By including this variation, the hold-up problem can be modelled since a time inconsistency may occur. The model was illustrated using past-decade events about the Argentinean transport network of natural gas, proposing a possible reason for the triggering of a sustained hold-up.