Strategies for Safeguarding Public Values in Liberalized Utility Sectors

In the utility sectors, public values such as affordability, safety, and protection of the environment, require safeguarding. In the last 15 years, most utilities have been either liberalized or privatized. In an attempt to protect public values under these new conditions, this shift has been accompanied by an emphasis on tight regulations and strict norms. These are examples of hierarchical safeguarding mechanisms. This mechanism can cause adverse effects, such as an increase in transaction costs, which diminish or even outweigh the supposed advantages of liberalization and privatization. In addition to hierarchical safeguarding, this article describes two mechanisms used to safeguard public values: network mechanisms and market mechanisms. We suggest that smart combinations of network and hierarchy on the one hand, and market and hierarchy on the other, will lead to more effective and efficient safeguarding of public values than relying on hierarchy alone.