Shall the law set them free? The formal and actual independence of regulatory agencies

Regulation by independent agencies, rather than ministries, is believed to result in better policy outcomes. Yet this belief requires one to accept a complex causal chain leading from formal independence to actual independence from politics, to policy decisions and, ultimately, to policy outcomes. In this study, we analyze the link between the formal and actual independence of regulatory agencies in Western Europe. New data on the appointment of chief executives of these agencies is used to create a proxy for the actual independence of agencies from politics. The analysis demonstrates that formal independence is an important determinant of actual independence, but the rule of law and the number of veto players matter as well.