nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2012‒03‒08
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The impact of phase II of the EU ETS on the electricity-generation sector By Ibrahim Ahamada; Djamel Kirat
  2. What drives investment in telecommunications? The role of regulation, firms’ internationalization and market knowledge By Daniel Montolio; Elisa Trujillo
  3. Designing Carbon Taxation Schemes for Automobiles: A Simulation Exercise for Germany By Adamos Adamou; Sofronis Clerides; Theodoros Zachariadis
  4. Firm Trading Behaviour and Transaction Costs in the European Union’s Emission Trading System: An Empirical Assessment By Jaraite, Jurate; Kažukauskas, Andrius
  5. Do regions make a difference? Exploring the role of different regional innovation systems in global innovation networks in the ICT industry By Chaminade, Cristina; Plechero, Monica
  6. Assessing the Trade Impact of the European Neighborhood Policy on EU-MED Free Trade Area By Pierluigi Montalbano; Silvia Nenci
  7. The Polarization of Employment in German Local Labor Markets By Charlotte Senftleben; Hanna Wielandt
  8. “Building a “quality in work” index in Spain” By Jordi López-Tamayo; Vicente Royuela; Jordi Suriñach
  9. An Economic Analysis of the Regulation of Pharmaceutical Markets. By [no author]
  10. Retirement intentions of older migrant workers: Does health matter? By Nicolas Gérard Vaillant; François-Charles Wolff
  11. Carbon Leakage and Capacity-Based Allocations. Is the EU right? By Guy Meunier; Jean-Pierre Ponssard; Philippe Quirion
  12. Which skills protect graduates against a slack labour market? By Humburg Martin; Grip Andries de; Velden Rolf van der
  13. Brown Sunsets and Green Dawns in the Industrial Sector: Environmental Innovations, Firm Behavior and the European Emission Trading By Francesco Bosello; Fabio Eboli; Roberta Pierfederici
  14. The role of investment banking for the German economy: Final report for Deutsche Bank AG, Frankfurt/Main By Schröder, Michael; Borell, Mariela; Gropp, Reint; Iliewa, Zwetelina; Jaroszek, Lena; Lang, Gunnar; Schmidt, Sandra; Trela, Karl
  15. Food Safety Regulation and Firm Productivity:Evidence from the French Food Industry By Bontemps, Christophe; Nauges, Céline; Réquillart, Vincent; Simioni, Michel
  16. How Do Laffer Curves Differ Across Countries? By Mathias Trabandt; Harald Uhlig
  17. Moroccans' Assimilation in Spain: Family-Based versus Labor-Based Migration By Rodriguez-Planas, Nuria; Vegas, Raquel
  18. With strings attached: Grandparent-provided child care, fertility, and female labor market outcomes By García-Morán, Eva; Kuehn, Zoe
  19. The determinants of intrafirm trade: Evidence from French firms By Corcos, G.; Irac, D.; Mion, G.; Verdier, T.
  20. And Yet they Co-Move! Public Capital and Productivity in OECD: A Panel Cointegration Analysis with Cross-Section Dependence By Anna Bottaso; Carolina Castagnetti; Maurizio Conti

  1. By: Ibrahim Ahamada (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Djamel Kirat (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper addresses the economic impact of the European Union Emission Trading Scheme (EU ETS) for carbon on wholesale electricity prices in France and Germany during the Kyoto commitment period (2008-2012). Specifically, we use first identify a structural break occurred on the carbon spot price series on October 2008, which is mainly resulting from the financial and economic crisis. Then, we model the prices of day-ahead electricity contracts. We look at the volatilities around their fundamentals and simultaneously evaluate the correlation between electricity prices in both countries. We find that the price of carbon does not matter for electricity prices in either countries before October 2008. After October 2008, electricity producers in both countries were constrained to include the carbon price in their cost functions. During that period, French electricity producers were more constrained than their German counterparts. Comparing the results with those reported in Kirat and Ahamada (2011) reveals improvements in the response of electricity generation sector to carbon constraints. The impact of carbon constraint increased significantly by 300% and 150% in France and Germany, respectively, between the pilot phase and the second phase of the EU ETS. This is a consequence of the possibility of "banking" for subsequent periods and the reduction of allowance caps introduced in the second phase. We also find evidence of a trade off between gas and coal in electricity generation in Germany. Furthermore, the conditional correlation of electricity prices in both countries is highly significant and greater than during the pilot phase of the EU ETS.
    Keywords: Carbon emission trading, multivariate GARCH models, structural breaks, energy prices.
    Date: 2012–01
  2. By: Daniel Montolio (Universitat de Barcelona & IEB); Elisa Trujillo (Universitat de Barcelona & IEB)
    Abstract: The aim of this paper is to classify the firms operating in the European telecommunications market according to their degree of internationalization and market knowledge, and to test the effects of this classification and the existence of access regulation on infrastructure investment in European broadband markets. To do so, we construct a (unique) data set for the 27 European countries for the period 2002 to 2009. We estimate, by means of panel data techniques (and instrumental variables to control for any potential endogeneity problem), an investment equation for all firms and separate equations for entrant and incumbent firms. Our results show no significant relation between regulation and total investment. The variables capturing the degree of internationalization and market knowledge have a positive and significant effect on total investment, being a positive and significant effect on entrants’ investment, but no significant impact on that of incumbent firms. This result indicates that, under the current regulatory framework, the firms that invest most are entrants with international experience, while the expansion of incumbents into other countries does not affect their investments in their home countries.
    Keywords: Telecommunications, regulation, investment, internationalization, knowledge
    JEL: L96 L51 F21 F23 D83
    Date: 2011
  3. By: Adamos Adamou; Sofronis Clerides; Theodoros Zachariadis
    Abstract: Vehicle taxation based on CO2 emissions is increasingly being adopted worldwide in order to shift consumer purchases to low-carbon cars, yet little is known about the effectiveness and overall economic impact of these schemes. We focus on feebate schemes, which impose a fee on high-carbon vehicles and give a rebate to purchasers of low-carbon automobiles. We estimate a discrete choice model of demand for automobiles in Germany and simulate the impact of alternative feebate schemes on emissions, consumer welfare, public revenues and firm profits. The analysis shows that a well-designed scheme can lead to emission reductions without reducing overall welfare.
    Keywords: CO2 emissions, German automobile market, feebates, carbon taxation
    Date: 2012–01
  4. By: Jaraite, Jurate (CERE, Centre for Environmental and Resource Economics); Kažukauskas, Andrius (CERE, Centre for Environmental and Resource Economics)
    Abstract: To the best of our knowledge, this study is one of the first to empirically analyse the trading behaviour of all ETS firms during the first phase of the EU’s Emissions Trading System. We use a unique dataset which allows investigating the importance of permit trading transaction costs, such as information costs and search costs. This paper shows that transaction costs can play an important role in the initial years of the programme. These costs are significant in explaining why a number of ETS firms did not sell their unused allowances on the market. This study also supports the concerns that transaction costs might be excessive for smaller participants.
    Keywords: emission trading; Europe; firm level data; transaction costs
    JEL: Q52
    Date: 2012–03–01
  5. By: Chaminade, Cristina (CIRCLE, Lund University); Plechero, Monica (CIRCLE, Lund University)
    Abstract: The access to global innovation networks (GINs) has been extremely unequal across regions around the globe. While certain regions are considered knowledge hubs, able to link to global knowledge flow, other still remain marginalized, pointing out to the role of regional innovation systems in the emergence and development of GINs. Using firm-level data collected through a survey and case studies in 2009-2010, this article systematically compares the patterns of global networks in the ICT industry in a selection of European and non-European regions. Contrary to what we expected, the results show that GINs may emerge in regions which are neither too innovative nor institutionally thick (like Tier 1) nor too thin (like Tier 3).
    Keywords: globalization; innovation networks; regions; Europe; India China
    JEL: O32
    Date: 2012–02–27
  6. By: Pierluigi Montalbano; Silvia Nenci
    Abstract: The main goal of this article is to provide an ex ante assessment of the long-run average treatment e¤ect of ENP on EU-MED FTA. The novelty of this work is twofold: to present nonparametric matching estimators along with gravity estimates; to assume, as a counterfactual, the ex-post treatment e¤ect of the EAs. Our empirical outcomes show a strong and robust impact on EU-MED trade integration of the new "deep integra- tion" e¤orts made by the EU. This empirical evidence is relevant both to policymaking and to strengthen the empirical assessment of the EU "policy impact" in the Mediterranean Area.
    Keywords: Trade policy, European integration, Gravity Model, Match- ing econometrics, Southern Mediterranean Countries
    JEL: F13 F15 F17
    Date: 2012–02
  7. By: Charlotte Senftleben; Hanna Wielandt
    Abstract: This paper uses the task-based view of technological change to study employment and wage polarization at the level of local labor markets in Germany between 1979 and 2007. In order to directly relate technological change to subsequent employment trends, we exploit variation in the regional task structure which reflects a region’s potential of being affected by computerization. We build a measure of regional routine intensity to test whether there has been a reallocation from routine towards non-routine labor conditional on a region’s initial computerization potential. We find that routine intensive regions have witnessed a differential reallocation towards non-routine employment and an increase in low- and medium-skilled service occupations. Our results corroborate the predictions of the task-based framework and confirm previous evidence on employment polarization in Germany in the sense that employment growth deteriorates at the middle of the skill distribution relative to the lower and the upper tail of the distribution.
    Keywords: Job Tasks, Polarization, Technological Change, Service Occupations, Regional Labor Markets
    JEL: J24 J31 J62 O33 R23
    Date: 2012–02
  8. By: Jordi López-Tamayo (Faculty of Economics, University of Barcelona); Vicente Royuela (Faculty of Economics, University of Barcelona); Jordi Suriñach (Faculty of Economics, University of Barcelona)
    Abstract: DThe European Union launched the Lisbon Strategy in 2000 with the aim of establishing itself as the world’s most competitive knowledge-based economy. At the same time, job quality was placed at the top of the European employment and social policy agenda and, later, it was to be incorporated as part of the European Employment and Europe-2020 Strategies. However, in a climate of economic crisis, it is argued that the price we are paying for continued economic growth is the dehumanisation of labour relationships with good jobs being substituted by bad jobs. In order to appraise such claims, scholars require quantifiable measures. The aim of this study is to define and apply a composite index of the quality in work in Spain. We present the results for the period 2001 to 2009. Our measure adopts the dimensional framework provided by the European Commission, and we present our results by region, sector, professional category and firm size. We find that the best results are recorded in the most developed regions, in the service sector, in the largest firms and in jobs in which workers are entrusted with most responsibility.
    Keywords: Regional Data, Regional Development, Economic Geography, Quality of Life, Labour Economics. JEL classification: R10, R11, R12; I31, J01.
    Date: 2012–02
  9. By: [no author]
    Abstract: Regulation in pharmaceutical markets is pervasive in most countries, especially in Europe. The nature of existing regulations is diverse, as they serve a number of purposes: guaranteeing safety, efficacy and security of drug usage; but also ensuring patients access to treatment, preserving affordability and fostering pharmaceutical innovation. A number of regulatory interventions are purposely designed to bring about more efficient pharmaceutical markets. These interventions are ultimately intended to increase welfare for patients today and patients tomorrow. Welfare today requires ensuring patients access to existing pharmacological treatment at an affordable cost. Welfare tomorrow requires ensuring a continued effort on research and development to produce pharmaceutical innovations that respond to currently unmet medical needs. The chapters of this thesis focus on a number of regulatory interventions that attract notable attention due to their effect on access, affordability and innovation. These include the regulation of pharmaceutical parallel trade, direct-to-consumer advertising of prescription drugs and off-patent pharmaceutical markets. By assessing the impact of public interventions on market outcomes and patients welfare, this thesis aims at contributing to the debate about optimal regulation of pharmaceutical markets.
    Date: 2012
  10. By: Nicolas Gérard Vaillant (LEM - Lille - Economie et Management - CNRS : UMR8179 - Université des Sciences et Technologies de Lille - Lille I - Fédération Universitaire et Polytechnique de Lille, Université Catholique de Lille - Université Catholique de Lille, ISTC - Institut des Stratégies et Techniques de Communication - Université Catholique de Lille); François-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272, INED - Institut National d'Etudes Démographiques Paris - INED)
    Abstract: This paper investigates the effect of self-assessed health on retirement plans of older migrants. As immigration is primarily associated with labor considerations, the role of economic incentives in the migration decision suggests that health could play a minor effect in immigrants' decision to retire. Using detailed data on immigrants living in France collected in 2003, we examine the role of health on early retirement intentions using simultaneous, recursive models that account for the fact that subjective health is potentially endogenous. Being in poor health increases the intention of migrant workers to retire early, but the subjective health outcomes have little influence on retirement plans.
    Keywords: Retirement intention ; self-assessed health ; immigrants ; France
    Date: 2012–02–17
  11. By: Guy Meunier (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, INRA - UR 1303 ALISS); Jean-Pierre Ponssard (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Philippe Quirion (CIRED - Centre international de recherches en environnement et en développement - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR8568 - AgroParisTech - ENPC)
    Abstract: Countries which currently are, or are in the process of, implementing a national or regional cap and trade CO2 scheme are following alternatives routes in a number of ways: coverage, cap/target, allocation of allowances, measures to manage price volatility, offsets, measures to address competitiveness and leakage. This last issue more specifically concerns "sensitive sectors", i.e. internationally traded carbon intensive sectors (aluminium, cement, steel, refined petroleum...). Three main approaches have been proposed: output based allocation (Aus- tralia, California, New Zealand), capacity based allocation (EU) and auctioning with border adjustment. This paper investigates what the best policy should be in this setting. The analysis suggests that, if a border adjustment is not available, a combination of output and capacity based allocation is socially optimal. Demand uncertainty and international competition play a key role in the analysis since the interaction between these two factors makes the difference. A calibration of the model is used to evaluate the EU scheme for the cement sector in the third phase of the EU-ETS (2013-2020). It is shown that (i) an output based scheme would perform better than the proposed scheme, that (ii) if output-based allocation is chosen, allocation should be much less generous than the current EU benchmark, and that (iii) full auctioning with border adjustment would perform even better.
    Date: 2012–02–22
  12. By: Humburg Martin; Grip Andries de; Velden Rolf van der (METEOR)
    Abstract: This paper explores the relationship between graduates’ skill levels and the risk of overeducationand unemployment in 17 European countries. We distinguish between field-specific and generalskills and between two labour market segments, the occupational domain of a particular field ofstudy and the labour market segment which requires general skills. In line with the predictions ofthe crowding out hypothesis, we find that the level of protection afforded by field-specificskills against the risk of overeducation increases with the degree of excess labour supply in theoccupational domain of the graduate’s field of study. Conversely, general skills offer moreprotection against the risk of overeducation when excess labour supply in the labour marketsegment which requires general skills is higher. Field-specific skills also protect graduatesagainst the risk of unemployment, whereas graduates’ level of general skills appears to beunrelated to the risk of becoming unemployed.
    Keywords: labour market entry;
    Date: 2012
  13. By: Francesco Bosello (Fondazione Eni Enrico Mattei, University of Milan and Euro-Mediterranean Center for Climate Change); Fabio Eboli (Fondazione Eni Enrico Mattei and Euro-Mediterranean Center for Climate Change); Roberta Pierfederici (Fondazione Eni Enrico Mattei and Euro-Mediterranean Center for Climate Change)
    Abstract: The present research describes a climate change integrated impact assessment exercise, whose economic evaluation is based on a CGE approach and modeling effort. Input to the CGE model comes from a wide although still partial set of up-to-date bottom-up impact studies. Estimates indicate that a temperature increase of 1.92°C compared to pre-industrial levels in 2050 could lead to global GDP losses of approximately 0.5% compared to a hypothetical scenario where no climate change is assumed to occur. Northern Europe is expected to benefit from the evaluated temperature increase (+0.18%), while Southern and Eastern Europe are expected to suffer from the climate change scenario under analysis (-0.15% and -0.21% respectively). Most vulnerable countries are the less developed regions, such as South Asia, South-East Asia, North Africa and Sub-Saharan Africa. In these regions the most exposed sector is agriculture, and the impact on crop productivity is by far the most important source of damages. It is worth noting that the general equilibrium estimates tend to be lower, in absolute terms, than the bottom-up, partial equilibrium estimates. The difference is to be attributed to the effect of market-driven adaptation. This partly reduces the direct impacts of temperature increases, leading to lower damage estimates. Nonetheless these remain positive and substantive in some regions. Accordingly, market-driven adaptation cannot be the solution to the climate change problem.
    Keywords: Environmental Innovation, Industrial Sectors, ETS, Innovation Drivers, CIS Data
    Date: 2012–01
  14. By: Schröder, Michael; Borell, Mariela; Gropp, Reint; Iliewa, Zwetelina; Jaroszek, Lena; Lang, Gunnar; Schmidt, Sandra; Trela, Karl
    Abstract: The aim of this study is to assess the contributions of investment banking to the economy with a particular focus on the German economy. To this end we analyse both the economic benefits and the costs stemming from investment banking. The study focuses on investment banks as this part of banking is particularly relevant for financing companies as well as the development and use of specific products to support the needs of private and professional clients. The assessment of benefits and costs of investment banking has been conducted from a European perspective. Nevertheless there is a focus on the German economy to allow a more detailed analysis of certain aspects as for example the use of derivatives by German companies, the success of M&As in Germany or the effect of securitization on loan supply and GDP in Germany. For comparison purposes other European countries and also the U.S. have been taken into account. The last financial crisis has shown the negative impacts of banks on the financial system and the whole economy. In a study on the contribution of investment banks to systemic risk we quantify the negative side of the investment banking business. In the last part of the study we assess how the effects of regulatory changes on investment banking. All important changes in banking and capital market regulation are taken into account such as Basel III, additional capital requirements for systemically important financial institutions, regulation of OTC derivatives and specific taxes. --
    Date: 2012
  15. By: Bontemps, Christophe (GREMAQ,INRA); Nauges, Céline (LERNA-INRA); Réquillart, Vincent; Simioni, Michel (GREMAQ,INRA)
    Abstract: The purpose of this article is to assess whether food safety regulations imposed by the European Union in the 2000s may have induced a slow-down in the productivity of firms in the food processing sector. The impact of regulations on costs and productivity has seldom been studied. This article contributes to the literature by measuring productivity change using a panel of French food processing firms for the years 1996 to 2006. To do so, we develop an original iterative testing procedure based on the comparison of the distribution of efficiency scores of a set of firms. Our results confirm that productivity decreased in two major food processing sectors (poultry and cheese) at the time when safety regulation was reinforced.
    Date: 2012–01
  16. By: Mathias Trabandt; Harald Uhlig
    Abstract: We seek to understand how Laffer curves differ across countries in the US and the EU-14, thereby providing insights into fiscal limits for government spending and the service of sovereign debt. As an application, we analyze the consequences for the permanent sustainability of current debt levels, when interest rates are permanently increased e.g. due to default fears. We build on the analysis in Trabandt-Uhlig (2011) and extend it in several ways. To obtain a better fit to the data, we allow for monopolistic competition as well as partial taxation of pure profit income. We update the sample to 2010, thereby including recent increases in government spending and their fiscal consequences. We provide new tax rate data. We conduct an analysis for the pessimistic case that the recent fiscal shifts are permanent. We include a cross-country analysis on consumption taxes as well as a more detailed investigation of the inclusion of human capital considerations for labor taxation.
    JEL: E0 E13 E2 E3 E62 H0 H2 H3 H6
    Date: 2012–02
  17. By: Rodriguez-Planas, Nuria (IZA); Vegas, Raquel (FEDEA, Madrid)
    Abstract: An important immigration policy question is to identify the best criteria to select among potential migrants. At least two methodological problems arise: the host country's immigration policy regime endogeneity, and immigrants' unobserved heterogeneity. To address the first problem, we focus in a country with an unprecedented immigration boom that lets immigrants freely into a country: Spain. To address the second problem, we focus on a large and homogenous group of immigrants: Moroccans. Using the 2007 Encuesta Nacional de Immigración (ENI), we find that, even when focusing on a very homogenous group of migrants (Moroccans) who tend to be low-skilled, and after controlling for migrants' self-selection with employment history prior to and at arrival, family-based immigrants are less likely to work than their labor-based counterparts both at arrival and ten years later. Our Heckman-corrected estimates highlight that there are no monthly earnings differences by reason of arrival, and that failure to correct for labor force participation strongly biases these results.
    Keywords: Southern and Eastern Mediterranean men and women, legal and employment assimilation
    JEL: J15 J24 J61 J62
    Date: 2012–02
  18. By: García-Morán, Eva; Kuehn, Zoe
    Abstract: Grandparents are regular providers of free child care. Similar to any other form of child care, availability of grandparent-provided child care affects fertility and labor market decisions of women positively. We find that women in Germany, residing close to parents or in-laws are more likely to have children and that as mothers they are more likely to hold a regular part-or fulltime job. However, different from any other type of child care, for individuals to enjoy grandparent-provided child care on a regular basis, residence choices must coincide with those of parents or in-laws. Thus while living close provides access to free child care, it imposes costly spatial restrictions. We find that hourly wages of mothers residing close to parents or in-laws are lower compared to those residing further away, and having relatives taking care of ones' children increases the probability of having to commute. We build a general equilibrium model of residence choice, fertility decisions, and female labor force participation that can account for the relationships between grandparent-provided child care, fertility and labor market outcomes. We simulate our model to analyze how women's decisions regarding residence, fertility, and labor force participation change under different family policies.
    Keywords: informal child care; fertility; labor force participation; spatial restrictions; regional labor markets
    JEL: H42 J13 J61 R23
    Date: 2012–02
  19. By: Corcos, G.; Irac, D.; Mion, G.; Verdier, T.
    Abstract: How well does the theory of the firm explain the choice between intrafirm and arms' length trade? This paper uses firm-level import data from France to look into this question. We find support for three key predictions of property-rights theories of the multinational firm. Intrafirm imports are more likely: (i) in capital- and skill-intensive firms; (ii) in highly productive firms; (iii) from countries with well-functioning judicial institutions. We further bridge previous aggregate findings with our investigation by decomposing intrafirm imports into an extensive and intensive margin. Doing so we uncover interesting patterns in the data that require further theoretical investigation.
    Keywords: intrafirm trade; outsourcing; firm heterogeneity; incomplete contracts; internationalization strategies; quality of institutions, extensive margin, intensive margin.
    JEL: F23 F12 F19
    Date: 2012
  20. By: Anna Bottaso (Department of Economics and Quantitative Methods, University of Genova); Carolina Castagnetti (Department of Economics and Quantitative Methods, University of Pavia); Maurizio Conti (Department of Economics and Quantitative Methods, University of Genova)
    Abstract: In this paper we add to the debate on the public capital - productivity link by exploiting very recent developments in the panel time series literature that take into account cross sectional correlation in non-stationary panels. In particular we evaluate the productive effect of public capital by estimating various production functions for a panel of 21 OECD countries over the period 1975-2002. We find strong evidence of common factors that drive the cointegration relationship among variables; moreover, our results suggest a public capital elasticity of GDP in the range 0.05-0.15, depending on model specification. Results are robust to the evidence of spillovers from public capital investments in other countries and to controlling for other productivity determinants like human capital, the stock of patents and R&D capital.
    Keywords: Public capital; Productivity; Panel Cointegration; Cross-section Dependence.
    JEL: C33 C15 H54 O47
    Date: 2011–11

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