Munich Personal RePEc Archive

Innovation, Investment and Regulation: What are the Options for Regulation in the Near Future?

Flacher, David and Jennequin, Hugues and Lorenzi, Jean-Hervé (2006): Innovation, Investment and Regulation: What are the Options for Regulation in the Near Future? Published in: International Journal of Digital Economics No. 64 (December 2006): pp. 105-123.

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Abstract

This paper addresses the question of what options are available to regulate the sector in the near future. In order to answer this question, the paper focuses on the problem of investment and innovation in an ex ante regulated sector. Relying on existing literature, we argue that ex ante regulation could represent a danger for the long-term development of the sector by delaying or cancelling investment projects, especially (but not only) concerning the construction of new infrastructures. We also argue that ex ante regulation is distorting investment itself: incremental investment is privileged as opposed to radical investment. In this context, we identify three possible options for regulation in the near future: 1) continuing ex ante regulation, 2) substituting ex post regulation for ex ante regulation and 3) implementing an industrial policy for macro-strategic reasons. After describing a few major mutations in the sector that must be taken into account by regulators and presenting the major dilemmas that the latter are facing, we propose two possible solutions inspired by foreign policy. The first solution consists of offering investors regulation holidays, with regular reviews to deem whether these holidays should be prolonged or not. The second solution consists of implementing an industrial policy that could take the form of a contract negotiated between the regulator and operators. This would guarantee the absence of ex ante regulation if the conditions of the contract (in terms of regional planning, price, quality of service, types of investment…) are met.

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