Rationalizing Rustic Regulators: How Should Australia's National Economic Regulators Be Reorganized?

40 Pages Posted: 11 Jul 2014

See all articles by Rodney Maddock

Rodney Maddock

Monash Business School; Victoria University - Victoria University of Technology

Joe Dimasi

Monash Business School

Stephen P. King

Monash University - Department of Economics; Productivity Commission

Date Written: July 11, 2014

Abstract

Australia has implemented extensive microeconomic reform since the 1980s. Part of this process involved developing a suite of independent economic regulatory authorities. These institutions largely developed in an ad hoc manner, without an overarching framework to consider which functions and responsibilities should be located in which institution, and how these institutions should be organised. This paper provides such a framework.

The paper sets out some basic principles about the location of regulatory responsibility. When should functions be located in government departments, independent regulatory authorities, or dealt with through market interactions within the broad legal framework? The paper notes that the core benefits of arms-length regulation derive from improved decision making – better expertise and reduced sovereign risk. The paper recommends focusing independent economic regulation on four basic functions: market creation, market operation, market outcomes, and market failures. It develops a model to guide both the creation and review of independent regulators in these four areas.

The paper identifies a number of basic problems that need to be addressed in design of the suite of independent economic regulators. In particular:

• how to avoid regulators being captured by some party with vested interests,

• how to make sure regulators are not slack,

• how to prevent regulators from usurping policy functions,

• how to limit potential mission creep by regulators, and

• how to deal with changes in the economic environment that impinge on the relevance, responsibilities and requirement for particular regulators.

The paper develops a set of regulatory principles that aim to address these basic problems. These are:

• to maintain regulatory relevance, make it hard to establish new regulators, and review each regulator once a decade,

• to give regulators clear and appropriate objectives and functions, and keep regulators separated from policy development,

• to establish clear regulatory independence and rotate Commissioners and senior staff,

• to make regulators accountable and transparent including through clear appeals processes, and

• to enhance regulatory efficiency by separating Commissioners from day-to- day management.

The paper then suggests how these principles might be applied in practice. It recommends that Australia consolidate its (national) economic regulators to just five:

• National Markets Commission

• Competition Commission

• Reserve Bank of Australia

• Consumer Protection Commission

• Essential Services Commission

Keywords: Regulation, Regulators, Competition regulation, Consumer protection regulation

JEL Classification: H11, K20, L51

Suggested Citation

Maddock, Rodney and Dimasi, Joe and King, Stephen Peter, Rationalizing Rustic Regulators: How Should Australia's National Economic Regulators Be Reorganized? (July 11, 2014). Available at SSRN: https://ssrn.com/abstract=2464866 or http://dx.doi.org/10.2139/ssrn.2464866

Rodney Maddock

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Victoria University - Victoria University of Technology ( email )

P.O. Box 14428
Melbourne City, Victoria 8001
Australia

Joe Dimasi

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Stephen Peter King (Contact Author)

Monash University - Department of Economics ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Productivity Commission ( email )

Level 28
35 Collins St.
Melbourne, Victoria, Victoria 3000
Australia

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