Regulation by Contract: A New Way to Privatize Electricity Distribution?

In many developing countries, both governments and investors have expressed disappointment with the performance of recently privatized electricity distribution companies. Some investors claim that the design of the new regulatory system is fundamentally flawed and recommend that independent regulatory commissions be replaced or supplemented by more explicit 'regulation by contract' that would reduce the discretion of new commissions.

This paper examines whether regulation by contract or a comb…