The regulation of a natural monopoly: the case of the electricity industry in Latin America: a political-economic approach.

Summary The presence of increasing returns was the traditional justification for regulation of the electricity industry, but recent empirical studies and new theoretical contributions have questioned the validity of such state intervention. The objective of this thesis is to clarify the role of regulation, both from a theoretical point of view and through the case of the electricity industry in Latin America. Although the study of the natural monopoly has been treated preferably with the paradigm of economic efficiency, within the framework of a normative approach to economics, this research proposes another method that seems better suited to explain the role of regulation of the electricity industry in Latin America, as well as the reforms carried out. This approach, which involves a combination of the paradigms of economic efficiency and political support, makes it possible to analyze not only the problems related to the techno-economic characteristics of the natural monopoly, but also the interactions between the government, the regulatory authorities and the regulated firms. Three Latin American countries have been selected because of the representativeness of their electricity industries: Argentina, Brazil and Mexico.