nep-reg New Economics Papers
on Regulation
Issue of 2005‒01‒16
eight papers chosen by
Christian Calmes
Université du Québec en Outaouais, Canada

  1. “Good” Governance and Policy Analysis: What of Institutions? By Parto,Saeed
  2. New Architectures in the Regulation and Supervision of Financial Markets and Institutions: The Netherlands By Olivier Pierrard; Henri Sneessens
  3. Regulatory Reform and Economic Performance in US Electricity Generation By Supawat Rungsuriyawiboon; Tim Coelli
  4. A Review of the Monitoring of Market Power The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems By Paul Twomey; Richard Green; Karsten Neuhoff; David Newbery
  5. Noncooperative Support of Public Norm Enforcement in Large Societies By Josef Falkinger
  6. Lobbies and Technology Diffusion By Diego Comin; Bart Hobijn
  7. Localization and Corruption: Panacea or Pandora’s Box? By Tugrul Gurgur; Anwar Shah
  8. The Ethical Dimension of Economic Choices By Vranceanu, Radu

  1. By: Parto,Saeed (MERIT)
    Abstract: Policy formation is only one the three main components in the continuum of policy formation – policy implementation – policy evaluation – policy formation. To fully understand why policy outcomes often fall significantly short of policy intentions we need to examine the structuring factors, i.e., the institutions of governance, that shape the policy process. This paper focuses on the interplay between the policy process, governance, and institutions to articulate a framework for conducting institutionally sensitive policy analysis. A comparative study of the waste subsystems in the Netherlands and the United Kingdom reveals that each subsystem is the product of its “own” institutional landscape, and not directly and immediately subject to the whims of policy making at the EU scale of governance. Although there are signs of “Europeanization” in both cases, national problems, policies, and politics as manifest through the full spectrum of formal and informal institutions continue to play a major role in facilitating and curtailing change in each of the two waste subsystems. The paper concludes with a discussion of the implications of institutionally sensitive policy analysis for the current discourse on governance for sustainable development at the European scale.
    Keywords: Economics ;
    Date: 2005
  2. By: Olivier Pierrard; Henri Sneessens
    Abstract: In recent years, several European Union member states have modified the institutional design offinancial supervision. These reforms pose the question which considerations have led to the different models chosen in these countries. We analyse the considerations in the Netherlands leading to the choice in 2002 of the twin -peaks model of financial supervision. The new model is based on the objectives of supervision. Thus, a separate authority is responsible for conduct-ofbusiness supervision, whereas a merged central bank and pensions and insurance board take care of prudential supervision. The authorities share responsibility for financial integrity issues. The main conclusion of this paper is that the size, composition and structure of the financial sector in the Netherlands constitute the main rationale behind the choice for a twin-peaks model of financial supervision.
    Date: 2004–12
  3. By: Supawat Rungsuriyawiboon; Tim Coelli (CEPA - School of Economics, The University of Queensland)
    Abstract: In this paper we investigate the effect of the introduction of incentive regulation upon the total factor productivity (TFP) growth of electricity generation companies in the United States, using sample data on 61 firms observed over a 13-year period from 1986 to 1998. Empirical estimates of TFP growth are obtained using three techniques: Tornqvist index numbers, a stochastic cost frontier and a stochastic input distance function. The results obtained using the stochastic cost frontier are discarded because they are found to differ from those obtained using the other techniques, apparently as a consequence of violations of the required cost minimizing behavioral assumptions, which are not uncommon in regulated industries. Tests of hypotheses regarding the effect of regulatory reform upon TFP (using the distance function results) indicate that the introduction of incentive regulation has not had the desired positive effect upon the economic performance of the firms involved. In fact, in the case of these data, we find that performance is negatively related with the introduction of the new regulatory regimes, a result that is the opposite of the theoretical predictions.
    Date: 2004–09
  4. By: Paul Twomey; Richard Green; Karsten Neuhoff; David Newbery
    Abstract: The paper surveys the literature and publicly available information on market power monitoring in electricity wholesale markets. After briefly reviewing definitions, strategies and methods of mitigating market power we examine the various methods of detecting market power that have been employed by academics and market monitors/regulators. These techniques include structural and behavioural indices and analysis as well as various simulation approaches. The applications of these tools range from spot market mitigation and congestion management through to long-term market design assessment and merger decisions. Various market-power monitoring units already track market behaviour and produce indices. Our survey shows that these units collect a large amount of data from various market participants and we identify the crucial role of the transmission system operators with their access to dispatch and system information. Easily accessible and comprehensive data supports effective market power monitoring and facilitates market design evaluation. The discretion required for effective market monitoring is facilitated by institutional independence.
    Keywords: Electricity, liberalisation, market power, regulation
    JEL: D43 L13 L51 L94
    Date: 2005–01
  5. By: Josef Falkinger
    Abstract: In small groups norm enforcement is provided by mutual punishment and reward. In large societies we have enforcement institutions. This paper shows how such institutions can emerge as a decentralized equilibrium. In a first stage, individuals invest in a public enforcement technology. This technology generates a sanctioning system whose effectiveness depends on the aggregate amount of invested resources. In a second stage, in which individuals contribute to the provision of a public good, the sanctioning system imposes penalties and rewards on deviations from the endogenous norm contribution. It is shown that even if group size goes to infinity public norm enforcement is supported in a noncooperative equilibrium. Psychological factors are not necessary but can be favorable for the emergence of effective public norm enforcement.
    Keywords: norm enforcement, public goods, institutions, sanctioning
    JEL: H41 K40 Z13
    Date: 2004
  6. By: Diego Comin; Bart Hobijn
    Abstract: Do lobbies affect technology diffusion and growth? A number of authors have identified the importance of vested interests as a deterrent to technology diffusion and the relevance that this may have for growth. however, the evidence that exists about this mechanism is just anecdotal. In this paper we build a model of lobbying and technology diffusion where the speed of diffusion of new technologies depends on some dimensions of the political regime and on the whether there is an old technology that may be substituted by the new technology. This differential effect of institutions on the diffusion of technologies with a predecessor constitutes the central element of our identification strategy. To implement this test we use technology diffusion data from Comin and Hobijn [2004]. We find that the relevant institutional variables have a differential effect on the diffusion of technologies with a predecessor technology as predicted by the theory. We show that this result is unlikely to be driven by omitted variables, or reverse causality.
    JEL: N10 O30 O57
    Date: 2005–01
  7. By: Tugrul Gurgur; Anwar Shah (World Bank)
    Abstract: An extensive literature on the relationship between decentralization (or localization) and corruption has developed in recent years. While some authors argue that there is a positive relationship between decentralization and corruption, others claim that decentralization in fact leads to a reduction in the level of corruption. This important policy question has not yet been laid to rest since previous empirical work simply uses eclectic regressions and lacks a conceptual framework to discover the root causes of corruption. Gurgur and Shah attempt to fill this void by presenting a framework in identifying the drivers of corruption both conceptually and empirically to isolate the role of centralized decisionmaking on corruption. The following results emerge: • For a sample of 30 countries (developing and industrial), corruption is caused by a lack of service orientation in the public sector, weak democratic institutions, economic isolation (closed economy), colonial past, internal bureaucratic controls, and centralized decisionmaking. • Decentralization is found to have a negative impact on corruption, with the effect being stronger in unitary than in federal countries. This paper—a product of the Poverty Reduction and Economic Management Division, World Bank Institute—is part of a larger effort in the institute to exchange ideas on the reform of public sector governance.
    Keywords: Governance; Public Sector Management
    Date: 2005–01–12
  8. By: Vranceanu, Radu (ESSEC Business School)
    Abstract: In general, capitalist countries display sustained growth, dynamism and innovation, and a high adaptability in response to external shocks. Yet in the last twenty years discontent over the notorious drawbacks of capitalism – corporate frauds, corruption, abuses of market power – have grown continually. In this paper, we argue that no remedy to these difficulties can be found if ethical dilemmas are not anticipated and addressed at the individual, firm and economy-wide level. While pro-ethical changes in business regulation would help, government action alone may not be effective enough. A possible complementary solution would be to alter the ideological foundations of capitalism, placing more emphasis on ethical issues. This intellectual change calls for a reorientation of the social sciences. In particular, to effectively support decision-makers in the difficult task of integrating the ethical constraint, economic theory should incorporate a more in-depth reflection on human goals.
    Keywords: Business Ethics; Capitalism; Economics; Values; Corporate social responsability
    JEL: A11 A13 B41 M14 P17
    Date: 2005–01

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