| Regulation of natural monopolies and oligopolies and environmental regulation are often ineffective in transition economies and developing countries. A possible cause of this failure is weak institutional endowments, such as limited bureaucratic capacity, high levels of corruption, and newly emerging legal and market institutions. The objectives of my thesis are to examine (both theoretically and empirically) these institutional problems and to draw appropriate lessons for the design of regulatory reforms.; Chapter 1 deals with the question of delegation of authority. Although discretionary power of public officials is widely recognized as a determinant of corruption, recent experiences indicate that delegating greater power to officials might be helpful to eliminate corruption. This theoretical examination shows that delegation eliminates corruption effectively if implemented with a wide range of other institutional reforms. However, such a comprehensive reform involves instability in that lacking one reform might reduce the whole welfare-improving effect drastically. This instability limits the advantages of delegation if reform outcomes are highly uncertain.; Chapter 2 builds on chapter 1 by seeking the optimal sequence of delegation, administrative reform and incentive reform in the presence of aggregate uncertainty concerning the outcome of reforms. I find that sequencing delegation and incentive reform is desirable, but gradualism starting from administrative reform decreases the probability of completing incentive reform and delegation.; Finally, Chapter 3 deals with the impact of environmental regulation on productivity and environmental performance in Eastern European transition economies. Macro data shows that as labor productivity started recovering, pollution intensity started declining in four transition countries (Bulgaria, Hungary, Lithuania, and Romania) between 1994 and 1997. This chapter theoretically and empirically investigates whether this can be explained by the nature of environmental regulation. By developing a theory of technology adoption, I find stricter regulation can improve productivity under certain circumstances. I test this theory using firm-level data in the transition economies and find evidence that increasing pollution taxes increases labor productivity and total factor productivity of firms. |
