Empirical essays in the economics of regulation

Reform processes undertaken on network industries have encompassed unbundling, privatization, introduction of market-oriented regimes for their competitive segments, and implementation of a new regulatory framework for the remaining segments with natural monopoly characteristics. The new regulatory framework has involved the creation of independent regulatory bodies and the incorporation of theoretical advances from the economics literature on incentive regulation, under the ultimate objective of providing the conditions and incentives for efficiency improvement and for the possible achievement of second best prices. This dissertation adds to the literature on the impacts of the restructuring measures implemented and contains three empirical essays on the reforms accomplished in the Brazilian electricity sector.; In Chapter 2, information on stock market reactions to regulatory announcements are employed to investigate the level of consistency and predictability of decisions taken by the Brazilian electricity sector regulator and to identify the extent the aforementioned regulatory body has been able to act independently and to balance multiple interests in regulation. The findings indicate that the regulator's decisions have not favored a single interest group. The evidenced unpredictability of the regulatory agency's decisions suggests the need for improvements in the regulatory discussion process, with the adoption of measures to increase the transparency and to promote more substantive public hearings. Additionally, the study shows that the need to provide incentives for new investments has played a significant role in the regulatory process. The estimates indicate that regulatory decisions accounted for roughly 12% of the difference in performance of the sample securities with respect to the market index.; The Chapter 3 examines the impact of privatization and incentive regulation on firms' performance in the period of 1998 to 2003. Evidence indicates performance improvement after the implementation of sector reforms, with both privatized and public companies reducing the efficiency gap with respect to companies that were privately owned before the reforms. The results show that privatized firms responded more aggressively than public firms to the new incentives brought by price-cap regulation, and suggest that the high performance improvement experienced by privatized firms did not come from mere reduction in costs brought by deterioration in the quality of service. The findings also indicate a possible strategic behavior associated with the periodic aspect of price-cap regulation, as well as to cost shifting implemented by companies that operate in the electricity generation segment.; The Chapter 4 is motivated by the increasing use of the model company approach to determine electricity distribution tariffs in Latin America, despite the criticisms made to the method's subjectivity and obscurity. The study examines whether the use of the engineering approach in the Brazilian electricity distribution sector periodic tariff review enabled the attainment of the welfare maximizer regulator's rate setting objectives, by comparing the method's implied performance scores to efficiency measures provided by economic benchmarking approaches. Results show that some firms, mainly the ones serving more affluent consumers, operating in more densely populated areas and having a lower proportion of electricity delivered to industrial customers, received substantially lower repositioning indexes than the economic benchmarking methods would recommend, pointing to a possible violation of firms' break-even constraints. The findings also reveal that significantly higher repositioning indexes might have been given to companies with the opposite characteristics, negatively affecting the incentives for further productivity improvements, as some of the possibly benefited companies do not appear in the top ten of the benchmarking efficiency ranki...