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IGOR GUARDIANCICH MATTIA GUIDI University of Southern Denmark LUiSS Guido Carli SPS Seminar 3 March 2015, h. 13,00 Dipartimento di Scienze.

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Presentation on theme: "IGOR GUARDIANCICH MATTIA GUIDI University of Southern Denmark LUiSS Guido Carli SPS Seminar 3 March 2015, h. 13,00 Dipartimento di Scienze."— Presentation transcript:

1 IGOR GUARDIANCICH MATTIA GUIDI University of Southern Denmark LUiSS Guido Carli SPS Seminar 3 March 2015, h. 13,00 Dipartimento di Scienze sociali e politiche Via Conservatorio 7, Milano Varieties of Capitalism and Regulatory Agencies 1

2 The research puzzle 2 Two important literatures Varieties of Capitalism and Independent Regulatory Agencies barely acknowledge each other. In line with Thatcher (2007) we think that IRAs are a constitutive element of the VoC architecture. This is the first study that tests empirically, whether the degree of coordination of an economy influences the formal independence of IRAs.

3 The literature review 3 Only three studies Maggetti (2007), Thatcher (2007), Guidi (2014) provide evidence that economic coordination matters for the independence of IRAs. Maggetti: strategic coordination is an equivalent condition to formal independence (in the presence of other factors) Thatcher: VoC and IRAs are tightly coupled, national path- dependence plays a role (in actual independence) Guidi: there is a hump-shaped relationship between economic coordination and formal independence (of NCAs) Hence, there is not yet an univocal theory or understanding of the connections between VoC and IRAs

4 The main hypotheses 4 In contrast to the literature on IRAs, but in line with the literature on other types of delegation, policy-makers not only take into account the capacity of regulators (politicians) to generate credible policy, but also the ability of regulatees (firms) to send credible signals, when deciding on how to delegate. To use a favorite metaphor in the literature: lashing to the mast equally depends on Ulysses and his crew, as it does on the Sirens, whose singing may or may not lure unwary sailors on to rocks.

5 Coordination in corporate governance 5 The extent to which firms are nested in corporate networks, which serves as a proxy for the degree of ‘liberalism’ in an economy CMEs: dominant shareholders, concentrated ownership, small equity markets. Access to external finance and corporate control involves firms in strategic interaction within corporate networks, which provide signals on future policy and strategy LMEs: these conditions are reversed, so, issues of finance and corporate control are determined by more competitive markets

6 Coordination in the labour market 6 Collective action capacity of market actors CMEs: powerful employer organizations and unions that have institutionalized venues for strategic coordination MMEs: powerful but uncoordinated collective market actors that often rely on the state for compensation LMEs: weak and fragmented collective market actors that rely on market coordination Both the literature on neo-corporatism and VoC contend that in hybrid regimes, market actors are more prone to generate Pareto-inefficient outcomes.

7 Hyp. 1a: linearity with accommodation 7 CMEs are more inimical to IRAs than LMEs. Capital in LMEs is impatient, and relies on credible signals to form expectations about future policy in the sector. Firms in LMEs receive few signals about future policy from corporate networks in which they may be embedded. So, they must rely on signals sent from an IRA, which should be granted more independence than in CMEs, where corporate networks act as informal coordinators. H1a: The formal independence granted to regulatory agencies decreases with the degree of coordination of an economy in corporate governance.

8 Hyp. 1b: linearity with reaction 8 CMEs are more inimical to IRAs than LMEs. Whereas LMEs are in the vanguard with respect to the introduction of regulated competition, firms in CMEs prefer to retain their industry or state- led modes of regulation. As a side effect, they may enact sub-optimal regulation that erects barriers to competition or prevents investors from entering a national market or providing capital for its utilities. If this is perceived as a legitimate threat, then we expect that policymakers may establish more, rather than less autonomous IRAs in CMEs and hybrid regimes to assuage investors. H1b: The formal independence granted to regulatory agencies increases with the degree of coordination of an economy in corporate governance.

9 Hyp. 2a: U-shaped with accommodation 9 IRAs as institutional complementarity. Politicians perceive IRAs as complementary to the collective action capacity of market actors. LMEs: regulated competition, highly independent IRAs CMEs: industry model of regulation, less independent IRAs MMEs: state-mediated mode of regulation, least independent IRAs H2a: The formal independence granted to regulatory agencies when market actors are centralized is lower than to when they are decentralized. It reaches its minimum at intermediate levels of coordination (in the labor market).

10 Hyp. 2b: hump-shaped with reaction 10 IRAs as signaling device for investors. In the presence of powerful market players, IRA independence gives information to investors about a country’s business climate. LMEs: less need for independence, due to market competition CMEs: more independence due to strong market actors MMEs: highest independence due to strong, but uncoordinated market actors H2b: The formal independence granted to regulatory agencies when market actors are centralized is higher than to when they are decentralized. It reaches its maximum at intermediate levels of coordination (in the labor market).

11 Empirical analysis 11  Dependent variable  formal independence of regulatory agencies across 16 European countries (and 8 sectors)  Explanatory variables  for H1: coordination in corporate governance  for H2: coordination in labour market  Control variables  replacement risk  veto players  sector

12 Varieties of capitalism 12

13 13

14 Robustness 14

15 U-shaped relationship 15

16 Electricity 16 United Kingdom, an Liberal Market Economy Thatcher’s commitment to regulated competition required a highly independent regulator (Office of Electricity Regulation) Switzerland, a liberal corporatist country failure to establish a regulator is attributable to the imperfect coordination of firms; larger and smaller firms disagreed on liberalization and the unions opposed it; the Swiss electricity supply association asked for a slow process and for compensation to losers. Spain, an economy characterized by corporate statism and close state- business links electricity was dominated by private suppliers until the 1970s, when the government took over; the movement to independent regulation during Gonzales was slow and ineffective; the Comisión Nacional de Energía has advisory functions and an average level of independence. Belgium, a Coordinated Market Economy consensual administration by the Control Committee for Electricity and Gas, a proper corporatist institution; in 2003, the newly established Commission for the Regulation of Electricity and Gas is very autonomous, however, it has advisory functions and is assisted by industry representatives.

17 Main conclusions 17 VoC consists of multiple dimensions. We consider: corporate governance from market to strategic coordination collective action capacity of market actors (employers and unions) fragmented, intermediate, coordinated Findings: 1. Corporate governance does not seem to influence the independence of regulatory agencies. 2. When setting up IRAs, governments adapt to the coordination capacity of market actors. This not only seems to confirm one of VoC's main arguments, it also lends proof to the hypothesis that IRAs are an institutional complementarity within the VoC architecture.

18 Directions for further research 18 The relationship between coordination and de facto independence  more data on IRAs’ actual autonomy are becoming available. IRAs as a constituent part of the VoC architecture  the role of IRAs in the coherence of different economic regimes has been almost entirely left out from VoC scholarship. The relationship between coordination and independence is neither exclusive nor time-invariant  IRAs are a relatively recent phenomenon that is rapidly evolving;  policy-makers revise their preferences;  need to gather updated data on the current functioning of IRAs and compare them with the early 2000s.


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