Evaluating regulatory reform of network industries: a survey of empirical models based on categorical proxies

TL;DR

This paper reviews empirical models using categorical proxies to evaluate regulatory reforms in network industries, highlighting methodological challenges and offering practical guidance for empirical strategy design.

Contribution

It provides a comprehensive survey of 63 studies on regulatory reform proxies and offers methodological recommendations for empirical analysis.

Findings

Identifies key methodological issues with categorical proxies

Provides practical advice for empirical strategy and variable selection

Highlights the importance of addressing endogeneity in reform evaluation

Abstract

Proxies for regulatory reforms based on categorical variables are increasingly used in empirical evaluation models. We surveyed 63 studies that rely on such indices to analyze the effects of entry liberalization, privatization, unbundling, and independent regulation of the electricity, natural gas, and telecommunications sectors. We highlight methodological issues related to the use of these proxies. Next, taking stock of the literature, we provide practical advice for the design of the empirical strategy and discuss the selection of control and instrumental variables to attenuate endogeneity problems undermining identification of the effects of regulatory reforms.