Independence of regulatory institutions is said to provide governments with a strategy for solving time-consistency problems. National economies benefit from investment but if investors cannot be confident that their returns are safe from government appropriation they may be unwilling to invest. The political independence of regulation mitigates this problem by providing credibility to governments'' promises not to extract returns from investors (Bertelli, 2009). This paper focuses on two of the puzzles that remain about independent regulatory institutions. First, where a government can appropriate returns via, for example, a windfall tax then it is unclear how independence of regulatory agencies can contribute to credibility. Second, recent policy debates about regulation in the UK (BIS, 2011) suggest a recent ''encroachment'' of non-economic objectives on to the terrain of economic regulators (see also Haber, 2010) a phenomenon that needs explaining. This paper contributes to the literature on credibility and independence by putting emphasis on the internal bargains within government in explaining patterns of regulatory independence. There are three elements to the argument. The causal power of independent regulation operates as a signal about the nature of government as well as through the direct effects of regulatory decisions; ''credibility signals'' spillover between sectors, investors use regulatory structures in other sectors as signals about the likelihood that government will appropriate profits using means other than sectoral regulation; and, government credibility is a common pool resource in which individual departments want government as a whole to develop credibility but themselves want to encroach on independence of regulation in relevant areas. The key to this perspective is that government is not a unitary actor pursuing rational goals, this suggests that the structures and operation of public administrations may influence the pattern of independence across sectors.
