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easily control. It is assumed that if the IRAs have been chosen so frequently and are playing
an important role in the state level, this role cannot be contrary to the interests of the
politicians. That is, this choice must provide some benefits to politicians able to
compensate those risks (gains from trade). What can the IRAs do for the Governors that
counterweight the potential agency costs generated by them?
The change to autonomous regulatory agencies has not been innocuous; it has
represented a very important change in the organization of state governments, with a
significant shift in the locus of power. We argue that the main motivation behind this
institutional change was the need of the current governments to tie the hands of the next
state government administration. In this paper we model the process of institutional choice
for the new IRAs, focusing on the role played by electoral competition, vulnerability and
uncertainty. Our goal is to explain the political determinants of constitutional choice. In
other words, why and how do they choose to delegating powers to independent institutions
rather than keeping discretionary authority?
There are two questions looking for answers. The first is why state governments set
up independent regulatory organizations. The second is what factors explain the different
degrees of autonomy enjoyed by the organizations or, to put it differently, the different
levels of ‘institutional rigidity’ in the states.
One way to answer to the first question is prima facie straightforward: when the
states privatize their utility companies, which are natural monopolies, they are strongly
inclined to implement regulators. The more interesting case, however, have to do with cases
in which the utilities were privatized but the agency’s creation was boycotted by the new
elected governors. In a few cases, left wing governors who opposed privatization refused to
go along and institutionalize the agencies. But does ideology explain attempts at boycotts
or there other factors involved, like political uncertainty? Why did left wing governors
create IRAs that were subsequently destabilized by right-wingers? Why the agencies, which
are more autonomous in their legal statutes, are precisely the ones that were boycotted?
This article suggests that in addition to privatization incentives, regulation has to do with
electoral competition and survival risks of governing coalition on state level in Brazil.
We claim that the more stable the electoral political game, and consequently, the
smaller the electoral risk for the elite group in power, the lesser the incentives Governors
Convention