nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2011‒10‒01
seventeen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The efficiency and effectiveness of social spending in the EU-27 and the OECD – a 2011 reanalysis By Tausch, Arno
  2. EU 2050 low-carbon energy future: visions and strategies By Leonardo Meeus; Isabel Azevedo; Claudio Marcantonini; Jean-Michel Glachant; Manfred Hafner
  3. Security of Supply and Electricity Network Flows after a Phase-Out of Germany’s Nuclear Plants: Any Trouble Ahead? By Friedrich Kunz; Christian von Hirschhausen; Dominik Möst; Hannes Weigt
  4. The European Map of Job Flows By Martin-Barroso, David; Nuñez-Serrano, Juan Andres; Turrion, Jaime; Velazquez, Francisco J.
  5. Once Poor, Always Poor? Do Initial Conditions Matter? Evidence from the ECHP By Andriopoulou, Eirini; Tsakloglou, Panos
  6. Working in family firms: less paid but more secure? Evidence from French matched employer-employee data By Bassanini, Andrea; Caroli, Eve; Rebérioux, Antoine; Breda, Thomas
  7. Europeanization of Private Law in Central and Eastern Europe Countries (CEECs): Preliminary Findings and Research Agenda By Fabrizio Cafaggi; Olha Cherednychenko; Marise Cremona; Kati Cseres; Lukasz Gorywoda; Rozeta Karova; Hans-Wolfgang Micklitz; Karolina Podstawa
  8. Capacity to Compete: Recent Trends in Access Regimes in Electricity and Natural Gas Networks By Adrien de Hauteclocque; Kim Talus
  9. A Vision for the EU Gas Target Model: the MECO-S Model By Jean-Michel Glachant
  10. Income inequality, decentralisation and regional development in Western Europe By Vassilis Tselios; Andrés Rodríguez-Pose; Andy Pike; John Tomaney; Gianpiero Torrisi
  11. What is the digital internal market and where the European Union should intervene? By Philippe Defraigne; Alexandre de Streel
  12. Different women’s employment and fertility behaviours in similar institutional settings: Evidence from Italy and Poland By Anna Matysiak; Daniele Vignoli
  13. Structural convergence among selected European countries. Multidimensional analysis By Olczyk, Magdalena; Lechman, Ewa
  14. An American Model for the EU Gas Market? By Sergio Ascari
  15. The Structure of Collective Bargaining and Worker Representation: Change and Persistence in the German Model By Addison, John T.; Teixeira, Paulino; Bryson, Alex; Pahnke, André
  16. Regional environmental efficiency and economic growth: NUTS2 evidence from Germany, France and the UK By Halkos, George; Tzeremes, Nickolaos
  17. Independence, Investment and Political Interference: Evidence from the European Union By Bernardo Bortolotti; Carlo Cambini; Laura Rondi

  1. By: Tausch, Arno
    Abstract: In this contribution, we look again at the trajectory and the efficiency of the ‘European social model’ (EMS). We re-apply an econometric methodology, which was already used in the study Herrmann, Heshmati et al., 2008, 2009. In that study, the authors said that apart from Finland and the Netherlands, some new EU-27 member countries, especially the Czech Republic and Slovenia, provided some answers to the question about the efficiency of state expenditures in reducing poverty rates, while countries like the Federal Republic of Germany achieved only a mediocre ranking. Considering the fact that social expenditures often amount to ¼ or even 1/3 of the GDP in advanced Western democracies, this question has acquired new and additional importance during the current international debt crisis, affecting several European countries such as Greece. Put in simple terms: aren’t the Germans, French … also throwing a lot of money out of the window, while the world is now fixed on the Greeks? The most influential social science journal article on the subject, mentioning the ESM in the title, was written by Scharpf, 2002 and maintains that efforts to adopt European social policies are politically impeded by the diversity of national welfare states, differing not only in levels of economic development and hence in their ability to pay for social transfers and services but, even more significantly, in their normative aspirations and institutional structures. Hyman, 2005, even says that there is simply no agreement what 'social Europe' means in the first place, let alone how it should be defended against the challenges inherent in the neoliberal approach to economic integration. Jepsen and Pascual, 2005 were equally sceptical about the subject. They even maintain that the very use of the concept under scrutiny here – the EMS - in the academic and political debate is simply a rhetorical resource intended to legitimize the politically constructed and identity-building project of the EU institutions. In our re-analysis of the underlying issues, we first come to the conclusion that the USA not only had lower unemployment and higher economic growth rates than the EU-15. Globalization inflows were smaller than in the EU-15, and – most importantly – the tendency towards sectoral inequality as a proxy for overall inequality was less pronounced than in the EU-15. The average, unweighted performance of the other Western democracies rather resembles the European performance. So the dire fact number one, established in this essay, is that during globalization, the ‘European social model’ is not better avoiding the ills of inequality than the USA or other Western democracies. Following the methodology, developed in Herrmann et al., 2008, 2009, and based on the latest Eurostat data, we then come to the conclusion that currently European social policy only lifts 6.80% of the total European population, i.e. 29.44% of the poor population, out of poverty. A very huge amount of money is required for this. Social transfers amount to ¼ of the European GDP in 2006. To lift just 1% of the population out of poverty, a staggering 3.66% of the GDP is now needed on the level of the EU-27. We also show that Sweden, Luxembourg, Finland, Spain, Denmark, Estonia, the Netherlands, Germany, the UK and France currently spend 5% or more of their GDP to lift just 1% of the population out of poverty. In most EU-27 member countries, only 1/3 or less of the poor population are lifted out of poverty by social transfers. I.e. 2/3 or more of the population are practically not reached by this gigantic machinery EMS, which consumes ¼ of European GDP. In accordance with Herrmann et al. 2008, 2009, we also analyze the OECD figures on how much it costs to lift 1% of the population out of poverty. Our analysis reveals that there are only many different single experiences and models of social policy, and these experiences do not confirm stereotypes, typologies or other generalized approaches. Our conclusions from the data for 2003 suggest that very efficient models, like the Slovak Republic and the Czech Republic, but also Luxembourg, Hungary and Poland, have to be contrasted by the laggards and high-cost models, like Spain and Mexico, but also Finland, Switzerland, New Zealand, and South Korea. The comparison of the aggregate efficiency parameters would even suggest that there was a convergence of efficiency trends from the mid-1980s onwards across the Atlantic. Again applying the politometric methods, developed in the study Hermann et. al. 2008, 2009, we document the fact that the PIIGS – i.e. Portugal, Ireland, Italy, Greece and Spain, which currently are at the centre of the financial storm, affecting Europe (Baglioni and Cherubini, 2010; Andrade and Chhaochharia, 2010; and Zemanek, 2010), do not perform well on our refined social protection expenditure effectiveness indicator. The five leading countries according to our analysis with the latest Eurostat 2008 data are Hungary; Slovakia; Bulgaria; Czech Republic; and Poland, which are all new member states of the Union. The least efficient social sectors are to be found in Latvia, Estonia, the UK and Greece. We also present data from a re-analysis of the UNICEF report (2007) on child poverty in advanced countries. Based on a standard SPSS XVIII principal component analysis of the UNICEF variables, and weighting the five resulting factors according to their contribution in explaining the total variance of the model we arrive at the conclusion that there is no evidence which would suggest that there is a single European social model, to be distinguished from the rest of other Western countries. Not surprisingly, the Scandinavians and North-west Europeans lead the way: Finland; Sweden; Netherlands; Switzerland and Denmark. The most lamentable situation of young people was to be encountered in the Baltic Republics, the USA and Japan. Confronted with the dire fact that neither the European political class, nor the academic community have come up with convincing evidence on the European social model (EMS), we arrive at the final conclusion that the ESM hardly exists.
    Keywords: social spending; European Commission; index numbers and aggregation; cross-sectional models; spatial models; economic integration; regional economic activity; international factor movements; international political economy
    JEL: F15 C43 F5 F2 C21 R11
    Date: 2011–09–19
  2. By: Leonardo Meeus; Isabel Azevedo; Claudio Marcantonini; Jean-Michel Glachant; Manfred Hafner
    Abstract: The aim of this paper is to identify the main challenges regarding the achievement of a low-carbon energy system in the EU by 2050. We analyze the visions presented by stakeholders and existing strategies of member state to achieve this transition. The five main challenges identified are the following: 1// energy efficiency - to ensure ambitious energy savings; 2// GHG emissions - to go towards a nearly zero-carbon electricity system; 3// renewable energy - to push effective technologies into the market; 4// energy infrastructure - to ensure timely investment in the electricity transmission grid capacity across borders; 5// energy markets - to guarantee timely investment in electricity generation back-up capacity. We also find that member states are already pursuing different strategies in dealing with these challenges. This creates risks for a European energy policy fragmentation. It also opens new opportunities for cooperation among member states so that the European Commission could demonstrate how to produce European added value.
    Keywords: climate change; EU energy policy; 2050 energy system; decarbonization
    Date: 2011–03–28
  3. By: Friedrich Kunz; Christian von Hirschhausen; Dominik Möst; Hannes Weigt
    Abstract: This paper, which examines the impacts of phasing out nuclear power in Germany, is the first to include an analysis of energy supply security and critical line flows in both the German and Central European electricity networks. The technical-economic model of the European electricity market, ELMOD, is used to simulate alternative power plant dispatch, imports, exports, and network use for a representative winter day. The results suggest that the shutdown of Germany’s nuclear plants will result in higher net imports, especially from the Netherlands, Austria, and Poland, and that electricity generation from fossil fuels will increase slightly in Germany and in Central Europe. We find that no additional imports will come from nuclear plants since they are already fully utilized in the merit order, and that electricity prices will rise on average by a few Euros per MWh. We conclude that closing the seven nuclear power plants within the government’s moratorium will cause no significant supply security issues or network constraints and an eventual full phase-out seem to be possible due to the completion of several new conventional power plants now under construction. Finally, we suggest that a nuclear phase-out in Germany within the next 3-7 years will not undermine security of supply and network stability in Germany and Central Europe.
    Keywords: electricity; Germany
    Date: 2011–06–15
  4. By: Martin-Barroso, David; Nuñez-Serrano, Juan Andres; Turrion, Jaime; Velazquez, Francisco J.
    Abstract: The European Map of Job Flows (EMJF) is a term used to denote a dataset of meso- and macro-level variables describing different aspect of labour mobility within national labour markets in Europe. In this paper, EMJF is centred on the notion of job “flows”, namely the changes in the level of employment at different breakdowns and levels of aggregation. EMJF is very rich in information content due to the wide variety of possible breakdown of the data and in this sense it is a “map” mostly in the virtual sense, namely, that it is not possible to visualise in the form of geographic maps all the wealth of available information. In terms of its value as a research product and tool, EMJF is mostly an intermediate product in the sense that it is a convenient means to organise the relevant information, which could subsequently be used for different analytical and research purposes. It provides both for cross-sections/snapshots of job flows at different point in time but also it allows their assessment and analysis over longer periods of time. In this sense, EMJF can be widely used for various types of labour-market analysis and research. EMJF’s visual components can also be a convenient tool for policy makers dealing with labour market policies at different level (regional, national or supra-national) in the decision-making process. Here we present a Compilation of a EMJF on the basis of firm-level data In this sense the job flows are built up on the basis of firm-level data for individual countries, following a common methodology. We adopt an approach of establishing such a EMJF on the basis of the AMADEUS dataset developed by the consultancy Bureau van Dijk. The dataset in its most extended version contains balance sheet data and ownership data for almost 14 million firms from 43 different European countries (September 2009 update). For many EU countries the dataset has in principle access to the entire universe of firms which have to report a balance sheet. In terms of countries, the geographic coverage of AMADEUS encompasses information for all the 27 members of the European Union (albeit with different qualities in terms of national coverage) as well as other 16 European countries that complete the geographical and political definition of the continent. Another interesting feature of the database is given by the detailed definition of a firm's location, with data available on the region (NUTS2) and the city in which the firm operates. This project deliverable presents the main results from the final stage of MICRO-DYN work on the EMJF. It discusses the approach to building the EMJF on the basis of AMADEUS data and illustrates the analytical potential of the EMJF as a research tool with a range of Europe-wide analytical exercises. Probably the most important outcome of this research effort is the demonstrated capability to perform meta-analysis at the European level of important labour market characteristics on the basis of firm-level data.
    Keywords: job flows; europe; labor market; microdata
    JEL: J21 J23
    Date: 2011
  5. By: Andriopoulou, Eirini (Athens University of Economics and Business); Tsakloglou, Panos (Athens University of Economics and Business)
    Abstract: The paper analyzes the effects of individual and household characteristics on current poverty status, while controlling for initial conditions, past poverty status and unobserved heterogeneity in 14 European Countries for the period 1994-2000, using the European Community Household Panel. The distinction between true state dependence and individual heterogeneity has very important policy implications, since if the former is the main cause of poverty it is of paramount importance to break the "vicious circle" of poverty using income-supporting social policies, whereas if it is the latter anti-poverty policies should focus primarily on education, training, development of personal skills and other labour market oriented policies. The empirical results are similar in qualitative but rather different in quantitative terms across EU countries. State dependence remains significant in all specifications, even after controlling for unobserved heterogeneity or when removing possible endogeneity bias.
    Keywords: poverty dynamics, EU, ECHP
    JEL: I32 I38
    Date: 2011–09
  6. By: Bassanini, Andrea; Caroli, Eve; Rebérioux, Antoine; Breda, Thomas
    Abstract: We study compensation packages in family and non-family firms. Using French matched employer-employee data, we first show that family firms pay on average lower wages. We find that part of this wage gap is due to low wage workers sorting into family firms and high wage workers sorting into non-family firms. However, we also find evidence that company wage policies differ according to ownership status, so that the same worker is paid differently under family and non-family firm ownership. We also find evidence that family firms are characterised by lower job insecurity, as measured by dismissal rates and by the subjective risk of dismissal perceived by workers. In addition, family firms appear to rely less on dismissals – and more on hiring reductions – than non-family firms when they downsize. We show that compensating wage differentials account for a substantial part of the inverse relationship between the family/non-family gaps in wages and job security.
    Keywords: family firms; wages; job security; compensating wage differentials; linked employer-employee data
    JEL: G34 J31 J33 J63 L26
    Date: 2011–09
  7. By: Fabrizio Cafaggi; Olha Cherednychenko; Marise Cremona; Kati Cseres; Lukasz Gorywoda; Rozeta Karova; Hans-Wolfgang Micklitz; Karolina Podstawa
    Abstract: Since its creation, European Union (hereinafter: ‘the EU’) has experienced various enlargements. In 1973, Denmark, Ireland and the United Kingdom joined the EU. Greece became a Member in 1981 and was followed by Spain and Portugal in 1986. Austria, Finland and Sweden accessed the EU in 1995. In 2004, ten Central and Eastern European Countries (hereinafter: ‘the CEECs’) became EU members. Finally, another two CEECs, i.e. Bulgaria and Romania, joined the EU on 1 January 2007. What impact did previous enlargements have on national systems of private law? It is an important question since there are ongoing accession negotiations with Croatia and Turkey and also other countries (Macedonia, Bosnia and Herzegovina, Albania Serbia and Montenegro, Ukraine and Moldova) are interested in adhering to the EU. Not only these countries but also Russia has developed specific relationships with the EU which affect its private law system. Learning from previous experience may help structuring better pattern of Europeanization. But the broader question is whether the process of Europeanization of private law in CEECs can be considered concluded with membership or ‘regional policies’ are needed to contextualize the implementation of EU law and to govern its spillovers.
    Keywords: European law; harmonisation; East-Central Europe
    Date: 2010–10–01
  8. By: Adrien de Hauteclocque; Kim Talus
    Abstract: Ensuring access to a truly ‘European’ energy grid for every consumer and supplier in the European Union is a core objective of the single market project. From the first wave of liberalization directives up until the ‘draft’ framework guidelines of September 2010 on capacity allocation and congestion management being prepared by ERGEG on behalf of the new Agency for the Cooperation of Energy Regulators (ACER), the objective of the access regime in both sector is similar: to creating capacity to compete. The objective of this paper is to review and compare from a legal point of view the evolution of the EU access regime in the electricity and gas sectors. We find strong similarities for two otherwise very different sectors, as well as an influence of the electricity regime on the gas regime. The sector-specific regulatory regime, supported by the use of competition law, organises a market design in both sectors based as much as possible on short-term capacity allocation with a liquid secondary trading platforms. The imposition of UIOLI mechanisms and an increased focus on firmness of capacity is certainly the way forward but implementation still is an issue. The right portfolio of capacity durations that are to be proposed by TSOs also remains an open question. The specific features of these two commodities result however in slightly different results in practice. In electricity, the development of market coupling initiatives creates new regulatory challenges but price convergence is now in sight. In gas, the progress has been slower and efficiently functioning spot markets are yet to emerge.
    Keywords: access regime; electricity; gas; European Union; competition law; framework guidelines
    Date: 2011–02–25
  9. By: Jean-Michel Glachant
    Abstract: The discussion on a target model for European gas network access started at the 18th Madrid Forum in 2010. This model shall provide a unifying vision on the future layout of the European gas market architecture. That vision shall assist all stakeholders in implementing the 3rd EU energy market package on the internal gas market in a consistent way. Here is my proposal for the European gas target model termed MECO-S Model. It is a "Market Enabling, Connecting and Securing Model" describing an end-state of the gas market to be achieved over time. It rests on three pillars that share a common foundation, being that economical investments in pipelines are realized: Pillar 1: Structuring network access to the European gas grid in a way that enables functioning wholesale markets; Pillar 2: Fostering short- and mid-term price alignment between the functioning wholesale markets by tightly connecting the markets; Pillar 3: Enabling the establishment of secure supply patterns to the functioning wholesale markets.
    Keywords: internal gas market; gas network access; gas security of supply; Third energy package
    Date: 2011–06–24
  10. By: Vassilis Tselios (University of Groningen); Andrés Rodríguez-Pose (IMDEA Social Sciences Institute); Andy Pike (Newcastle University); John Tomaney (Newcastle University); Gianpiero Torrisi (Newcastle University)
    Abstract: This paper deals with the relationship between decentralisation, regional economic development, and income inequality within regions. Using multiplicative interaction models and regionally aggregated microeconomic data for more than 100,000 individuals in the European Union (EU), it addresses two main questions. First, whether fiscal and political decentralisation in Western Europe has an effect on within regional interpersonal inequality. Second, whether this potential relationship is mediated by the level of economic development of the region. The results of the analysis show that greater fiscal decentralisation is associated with lower interpersonal income inequality, but as regional income rises, further decentralisation is connected to a lower decrease in inequality. This finding is robust to the measurement and definition of income inequality, as well as to the weighting of the spatial units by their population size.
    Keywords: Income inequality; income per capita; fiscal and political decentralization; interaction; regions; Europe
    Date: 2011–09–16
  11. By: Philippe Defraigne; Alexandre de Streel
    Abstract: This paper analyses the digital internal market and when EU intervention is needed to achieve this internal market. It sets legal and economic criteria to determine the appropriate scope of the EU intervention. It applies these criteria to several case studies and concludes that sometimes the EU intervention is not justified (choice of regulatory remedies in many national markets, regulation of mobile termination rate, price control of Next Generation Access networks), whereas in other cases EU intervention is justified (entry regulation, international roaming, spectrum). The paper calls for a more open debate of the concept and the means to achieve the digital internal market. It also submits that EU intervention should focus on the areas where its benefits are the highest (in particular given the possibilities of economies of scale provided by the technology or the cross-country externalities), and where its costs are the lowest (in particular given the heterogeneity of national preferences or the need for regulatory experimentation and competition). Therefore, EU intervention is more relevant for the content part of digital regulation (such as copyright, privacy, electronic commerce, dispute resolution) than for the infrastructure part (i.e. the electronic communications networks and services). In particular, this paper calls the Commission to use with extreme caution its new power on regulatory remedies, especially in the context of the deployment of NGA, given the uncertainty on the best form of regulation.
    Keywords: digital internal market; level of intervention; regulatory remedies
    Date: 2011–06–20
  12. By: Anna Matysiak; Daniele Vignoli (Institute of Statistics and Demography, Warsaw School of Economics)
    Abstract: In this paper we compare Italy and Poland, two countries where the country-specific obstacles to work and family reconciliation are similarly strong, but which differ in terms of the history of women’s labour force participation and of household living standards. We adopt a life course perspective, and trace women’s employment choices around the first and the second birth. On the one hand, our findings suggest the presence of a strong conflict between women’s paid work and childbearing in both countries. On the other, our results show that women’s employment clearly inhibits childbearing in Italy, while in Poland women tend to combine the two activities. Overall, we find that countries characterised by similarly strong institutionally or culturally driven tensions between work and family may differ in how women’s fertility and employment behaviours are interrelated.
    Keywords: work and family reconciliation, fertility, women’s employment, Poland, Italy
    JEL: J13 J16
    Date: 2011
  13. By: Olczyk, Magdalena; Lechman, Ewa
    Abstract: The main aim of the paper to test for structural convergence among arbitrary selected European countries. The authors choose four transition economies: Poland, Czech Republic, Hungary and Slovak Republic which are widely recognized as structurally similar economies. All four countries` economy structures are consequently compared with the structure of German economy – here selected as the reference country. The authors want to find out whether it is possible to confirm the hypothesis about the structural convergence between the four selected economies and Germany. The data sample covers the period of 2000-2007. The empirical part of analysis bases on 18 different indicators connected with the economy structure. To verify the hypothesis the authors apply multidimensional taxonomy methods
    Keywords: structural convergence; structural changes
    JEL: F00 F43
    Date: 2011
  14. By: Sergio Ascari
    Abstract: It is generally believed that the American model is not suitable for Europe, yet North America is the only large and working competitive gas market in the world. The paper shows how its model could be adapted as a target for market design within the European institutional framework. It starts from analysis of the main peculiar economic features of the gas transportation industry, which should underpin any efficient model. After the Third Package is properly implemented the EU will share several building blocks of the American model: effective unbundling of transportation and supply; regulated tariffs which, for long distance transportation, are in fact largely related to capacity and distance; investments based mostly on industry’s initiative and resources, and the related decisions are increasingly made after open and public processes. Yet Europe needs to harmonize tariff regulation criteria, which could be achieved through a monitoring process. National separation of main investment decisions should be overcome, possibly by organising a common platform where market forces and public authorities interact with private suppliers to require existing and develop new capacity, whereas industry competitively offers its solutions. Such platform would allow for long term capacity reservation, subject to caps and congestion management provisions. Auctions and possibly market coupling would play an important role in the allocation of short term capacity but a limited one in long term. Market architecture and the organisation of hubs would also be developed mostly by market forces under regulatory oversight. The continental nature of the market suggests a likely concentration of trading in a very limited number of main markets, whereas minor markets would have a limited role and would be connected to major ones, with price differences reflecting transportation costs and market conditions. Excessive interference or pursuit of political goals in less than transparent ways involves the risk of slower liquidity development and higher market fragmentation. With this view as a background, regulatory work aimed at completing the European market should be based on ensuring the viability of interconnections between current markets and on the establishment of common platforms and co-ordinated tariff systems, fostering the conditions for upstream and transportation capacity development.
    Keywords: Hubs; infrastructure; target model; network tariffs; gas market design; capacity allocation
    Date: 2011–07–07
  15. By: Addison, John T. (University of South Carolina); Teixeira, Paulino (University of Coimbra); Bryson, Alex (National Institute of Economic and Social Research (NIESR)); Pahnke, André (IfM Bonn)
    Abstract: This paper depicts and examines the decline in collective bargaining coverage in Germany. Using repeat cross-section and longitudinal data from the IAB Establishment Panel, we show the overwhelming importance of behavioral as opposed to compositional change and, for the first time, document workplace transitions into and out of collective agreements via survival analysis. We provide estimates of the median duration of coverage, and report that the factors generating entry and exit are distinct and symmetric.
    Keywords: sectoral and firm agreements, changes in collective bargaining/works council coverage, shift-share analysis, bargaining transitions, survivability
    JEL: J50 J53
    Date: 2011–09
  16. By: Halkos, George; Tzeremes, Nickolaos
    Abstract: This paper by applying nonparametric techniques measures spatial environmental heterogeneities of 98 regions from Germany, France and the UK. Specifically environmental performance indexes are constructed for the 98 regions (NUTS 2 level) identifying their ability to produce higher growth rates and reduce pollution (in the form of municipal waste) generated from regional economic activity. By applying conditional stochastic kernels and local constant estimators it investigates the regional economic activity – environmental quality relationship. The results indicate several spatial environmental heterogeneities among the examined regions. It appears that regions with higher GDP per capita levels tend to have higher environmental performance.
    Keywords: Regional environmental efficiency; directional distance function; conditional stochastic kernel; nonparametric regression
    JEL: Q50 O13 C60
    Date: 2011–09
  17. By: Bernardo Bortolotti; Carlo Cambini; Laura Rondi
    Abstract: This paper examines the implications of “modern” regulatory governance - i.e. the inception of Independent Regulatory Authorities (IRAs) - for the investment decisions of a large sample of EU publicly traded regulated firms from 1994 to 2004. These firms provide massively consumed services, and this is why governments are highly sensitive to regulatory decisions and outcomes. We therefore analyse and empirically investigate if: i) the inception of IRAs reduces the time-inconsistency problems that lead regulated firms to underinvest, and ii) governments’ political orientation and residual state ownership interfere with investment decisions. To control for potential endogeneity of the key institutional variables, we draw our identification strategy from the political economy literature. Our results show that regulatory independence has a positive impact on regulated firms’ investment while private vs. state ownership is not significant. We also find that, under executives at the extreme of the political spectrum, government interference in the functioning of the IRA is likely to re-introduce instability and uncertainty in the regulatory framework, thus undermining investment incentives.
    Keywords: Institutions; Firm Investment; Private and State ownership; regulatory independence; government's political orientation
    Date: 2011–07–07

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