ASi" kUCTURE FlOR DEVELOPMENT

this chapter shows, where regulatory barriers have
been lowered, even limited new entry or the credi-
ble threat of competition has led to lower prices and
substantial cost reductions.
Tailoring contracts to attract specific investments
has been the most common means used to balance
the public interest and private initiatve. Contracts
have been not only a regulatory instrument, but also
an essential mechanism for risksharing and hence
for financing private projects (Chapter 5). But expecting
individual contracts to bear the continuing
burden of policy formulation and regulatioi., al-
though attractive in the short term, iaises the possi-
bility of misuse because consistencv and transparency
in contract terms are not always easy to
ensure.
In the long run, what is needed is a stlitory reg-
ulatory system that dearly defines the rules of the
'game in each sector and openly enforces them. Al-
though the possibility of abuse cannot be eliminated,
it can be minimized through a system of
checks and balances that reinforces the incentives
for all parties to act in a manner consistent with the
social good. Using consumer feedback in innovative
ways in the regulatory process should be an impor-
tant priority for regulators.
electric power generation) has much to do with
these innovations. But more fundamental forces are
at work, making the new iniitiatives relevant to sec.
tors as diverse as surface transportation, waste treatment
and management, and drinking water supply.
The weight of evidence is that competition in or
for a market for services is generally more effective
in responding to consumer demands than are
mechanisms for making public enterprises more
accountable. We stand on the cusp of change.
Familiar practices are disappearing, but in their
place are unprecedented opportunities for productivity
growth and emergence of new products and
services.
The diffusion of novel ideas such as sector unbundling,
competitive entry, and incentive rcgulaions
from industral to developing countries has cccurred
at a remarlkable speed. Some developing
countries have in fact led the move toward more
market-based provision of infrastructure, as in pri-
Vatization of utilities. Continuation along this path
will bring further dividends In particular, developing
countries need to place greater reliance on new
entry and on competition to encourage investment
and efficiency and to mobilize the skills necessary to
achieve social goals. As the evidence presented in
~72.