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on Regulation |
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Issue of 2004‒12‒20
eight papers chosen by Christian Calmes Université du Québec en Outaouais, Canada |
| By: | Efraim Benmelech; Mark J. Garmaise; Tobias Moskowitz |
| Abstract: | We examine the impact of asset liquidation value on debt contracting using a unique set of commercial property non-recourse loan contracts. We employ commercial zoning regulation to capture the flexibility of a property's permitted uses as a measure of an asset's redeployability or value in its next best use. Within a census tract, more redeployable assets receive larger loans with longer maturities and durations, lower interest rates, and fewer creditors, controlling for the current value of the property, its type, and neighborhood. These results are consistent with incomplete contracting and transaction cost theories of liquidation value and financial structure. |
| JEL: | G3 R0 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11004&r=reg |
| By: | Gary S. Becker; Kevin M. Murphy; Michael Grossman |
| Abstract: | This paper concentrates on both the positive and normative effects of punishments that enforce laws to make production and consumption of particular goods illegal, with illegal drugs as the main example. Optimal public expenditures on apprehension and conviction of illegal suppliers obviously depend on the extent of the difference between the social and private value of consumption of illegal goods, but they also depend crucially on the elasticity of demand for these goods. In particular, when demand is inelastic, it does not pay to enforce any prohibition unless the social value is negative and not merely less than the private value. We also compare outputs and prices when a good is legal and taxed with outputs and prices when the good is illegal. We show that a monetary tax on a legal good could cause a greater reduction in output and increase in price than would optimal enforcement, even recognizing that producers may want to go underground to try to avoid a monetary tax. This means that fighting a war on drugs by legalizing drug use and taxing consumption may be more effective than continuing to prohibit the legal use of drugs. |
| JEL: | D00 D11 D60 I11 I18 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:10976&r=reg |
| By: | Kira Markiewicz; Nancy L. Rose; Catherine Wolfram |
| Abstract: | Although the allocative efficiency benefits of competition are a tenet of microeconomic theory, the relation between competition and technical efficiency is less clear. Neoclassical models of profit-maximization subsume static cost-minimizing behavior regardless of market competitiveness, but traditional cost-of-service regulation may mitigate incentives for cost-minimization, and agency models of managerial behavior suggest possible scope for competition to influence cost-reducing effort choices. This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. Using data on annual generating plant-level input demand, we find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade, while investor-owned utility plants in restructured states significantly reduced their nonfuel operating expenses and employment. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach. |
| JEL: | L11 L43 L51 L94 D24 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11001&r=reg |
| By: | William J. Collins (Department of Economics, Vanderbilt University) |
| Abstract: | In this paper, we study the incentives for market concentration of (online and traditional) auction houses. Would sellers and buyers be better off if two separate auction houses merged? We suppose that each auction house has a separate clientele of sellers and buyers. Sellers value their (identical) units at 0, while buyers have independent private values. Each auction house uses an ascending auction or by revenue equivalence any auction mechanism that allocates units efficiently among those buyers at that auction house. If no buyers are lost upon the merger, we find that efficiency gains increase, but that the expected sellers' revenue increases by more than the efficiency gains, leaving the buyers worse off. This result extends Bulow and Klemperer's (1996) insight that the competition of an additional bidder increases auction revenue by more than the ability to commit to an optimal auction with one less bidder; in our model, the extra competition created by having all of the bidders bid against each other after the merger more than offsets any supply effects. With an example, we show that if buyers choose whether to participate or not, it is possible upon a merger that so many buyers are lost, the sellers are actually worse off. We conclude that without transfers from sellers to buyers, the merger may or may not be profitable for sellers. |
| Keywords: | Fair housing, residential segregation |
| JEL: | J70 R0 |
| Date: | 2003–02 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0304&r=reg |
| By: | Andrew F. Daughety (Department of Economics and Law School, Vanderbilt University); Jennifer F. Reinganum (Department of Economics and Law School, Vanderbilt University) |
| Abstract: | We employ a simple two-period model to show that the use of confidential settlement as a strategy for a firm facing tort litigation leads to lower average product safety than that which would be produced if a firm were committed to openness. Moreover, confidentiality can even lead to declining average product safety over time. We also show that a rational risk-neutral consumer's response to a market environment, wherein a firm engages in confidential settlement agreements, may be to reduce demand. We discuss how firm profitability is influenced by the decision to have open or confidential settlements; all else equal, a firm following a policy of openness will pay higher equilibrium wages and incur higher training costs, though product demand will not be diminished (as it may be for a firm employing confidentiality). Further, we characterize the choice of regime, providing conditions such that, if the cost of credible auditing (to verify openness) is low enough, a firm will choose to pay for auditing and eschew confidentiality. |
| Keywords: | confidential settlement, product safety |
| JEL: | K13 L15 |
| Date: | 2003–08 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0317&r=reg |
| By: | Marc T. Law; Gary D. Libecap |
| Abstract: | We examine three theories of Progressive Era regulation: public interest, industry capture, and information manipulation by the federal bureaucracy and muckraking press. Based on analysis of qualitative legislative histories and econometric evidence, we argue that the adoption of the 1906 Pure Food and Drugs Act was due to all three factors. Select producer groups sought regulation to tilt the competitive playing field to their advantage. Progressive reform interests desired regulation to reduce uncertainty about food and drug quality. Additionally, rent-seeking by the muckraking press and its bureaucratic allies played a key role in the timing of the legislation. We also find that because the interests behind regulation could not shape the enforcing agency or the legal environment in which enforcement took place, these groups did not ultimately benefit from regulation in the ways originally anticipated. |
| JEL: | I1 N4 L5 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:10984&r=reg |
| By: | Bergman, Nittai; Nicolaievsky, Daniel |
| Abstract: | Some legal regimes leave gaps in the protection provided by the law to firm investors. This paper considers the decision by a firm to opt out of the law and bridge those gaps using contracts. Examining the charters of a sample of Mexican firms, we find that private firms often enhance significantly the protection offered by the law to their investors, but public firms rarely do so. Motivated by these findings, we construct a model that endogenizes the degree of investor protection that firms provide, using as springboard the assumption that legal regimes differ in their ability to enforce what we call precisely filtering contracts, namely, contracts that provide protection only in those cases where expropriation can occur. Our model generates predictions about the types of contracts that would be employed and the levels of investor protection that they would provide across different legal regimes in both private and in public firms. |
| Keywords: | Corporate governance, investor protection, expropriation, contract design, |
| Date: | 2004–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:mit:sloanp:7397&r=reg |
| By: | Schmalensee, Richard |
| Abstract: | US antitrust policy takes as its objective consumer welfare, not total economic welfare. With that objective, Joe Bain's definition of entry barriers is more useful than George Stigler's or definitions based on economic welfare. It follows that economies of scale that involve sunk costs may create antitrust barriers to entry. A simple model shows that sunk costs without scale economies may discourage entry without creating an antitrust entry barrier. |
| Keywords: | antitrust, U.S. antitrust policy, entry barriers, |
| Date: | 2004–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:mit:sloanp:7384&r=reg |