Jean-Jacques Laffont's book on “regulation and development” is to be praised on two grounds. It is the first comprehensive book to revisit the theory of regulation and incentives from the viewpoint of the needs and constraints of developing and transition countries. Following the liberalization, deregulation, and privatization trends that significantly modified industrial structures in developed countries in the 1980s, and in the wake of the “structural adjustment” and the “transition” from socialism, a powerful set of reforms was set in motion in developing and transition countries during the 1990s. Positive results are starting to show up in transition countries as they overcome the adjustment costs of the transition. But, in both developing and transition countries, satisfaction with the reforms is far from uniform. In several cases, liberalization and privatization have been severely criticized by some for having led to practically unregulated private monopolies that charge unduly high prices and do not necessarily improve quality. Today, it is increasingly recognized that, in many instances, the problem was that reformers disregarded the functioning of regulatory institutions, assuming implicitly they would work as in developed countries. Regulatory institutions do not always function well in rich countries; however, the problems confronting developing countries are both more numerous and more serious. Offering a theory of regulatory institutions specific to developing countries is therefore a major contribution to development economics.