The Institutional Foundations of Regulatory Capitalism: The Diffusion of Independent Regulatory Agencies in Western Europe

This article studies the diffusion of the main institutional feature of regulatory capitalism, namely, independent regulatory agencies. While only a few such authorities existed in Europe in the early 1980s, by the end of the twentieth century they had spread impressively across countries and sectors. The analysis finds that three classes of factors (bottom-up, top-down, and horizontal) explain this trend. First, the establishment of independent regulatory agencies was an attempt to improve credible commitment capacity when liberalizing and privatizing utilities and to alleviate the political uncertainty problem, namely, the risk to a government that its policies will be changed when it loses power. Second, Europeanization favored the creation of independent regulators. Third, individual decisions were interdependent, as governments were influenced by the decisions of others in an emulation process where the symbolic properties of independent regulators mattered more than the functions they performed.