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on Regulation |
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Issue of 2005‒05‒07
eleven papers chosen by Christian Calmes Université du Québec en Outaouais, Canada |
| By: | Elizalde, Abel; Repullo, Rafael |
| Abstract: | This Paper analyses the determinants of regulatory capital (the minimum required by regulation) and economic capital (the capital that shareholders would choose in absence of regulation) in the context of the single risk factor model that underlies the New Basel Capital Accord (Basel II). The results show that economic and regulatory capital do not depend on the same set of variables and do not react in the same way to changes in their common determinants. For plausible parameter values, they are both increasing in the loans’ probability of default and loss given default, but variables that affect economic but not regulatory capital, such as the intermediation margin and the cost of capital, can move them significantly apart. The results also show that market discipline, proxied by the coverage of deposit insurance, increases economic capital, although the effect is generally small. |
| Keywords: | bank regulation; Basel II; capital requirements; credit risk; market discipline |
| JEL: | G21 G28 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4770&r=reg |
| By: | Steven Shavell |
| Abstract: | This article develops the point that the problems associated with contractual holdup may justify legal intervention in theory, and the article relates this conclusion to legal intervention in practice. Contractual holdup is considered for both fresh contracts and for modifications of contracts. The law can in principle alleviate the incentive and risk-bearing problems due to holdup in two ways. One approach is for the law simply to void agreements made in certain circumstances, since that will remove the prospect of profit from holdup. This policy may be desirable when the events that permit holdup are engineered, for these events would not have been instigated if they would not have resulted in enforceable contracts. When situations of need are not engineered (bad weather puts a ship in jeopardy), flat voiding of contracts is undesirable, since contracts for aid in situations of need (to tow a ship) are often socially beneficial. In these circumstances, the policy of controlling the contract price is preferable, as that policy can reduce the problems of holdup but still allow contracts to be made. Both types of legal intervention in contracts and their modifications -- voiding without regard to price and control of price -- are used by courts to counter problems of pronounced holdup. Also, various price control regulations appear to serve the same objective, at least in part, for instance maximum price ordinances for car towing services, emergency price regulations, and the historically important rule of laesio enormis of the Middle Ages. |
| JEL: | D8 K12 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11284&r=reg |
| By: | Schmitz, Patrick W. |
| Abstract: | Under symmetric information, a job protection law that says that a principal who has hired an agent today must also employ them tomorrow can only reduce the two parties’ total surplus. The law restricts the principal’s possibilities to maximize their profit, which equals the total surplus, because they leave no rent to the agent. However, under asymmetric information, a principal must leave a rent to the agent, and hence profit maximization is no longer equivalent to surplus maximization. Therefore, a job protection law can increase the expected total surplus by restricting the principal’s possibilities to inefficiently reduce the agent’s rent. |
| Keywords: | employment protection; job security; labour market rigidities |
| JEL: | D82 E24 J65 K31 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4031&r=reg |
| By: | John Armour; Michael J Whincop |
| Abstract: | Recent work in both the theory of the firm and of corporate law has called into question the appropriateness of analysing corporate law as ‘merely’ a set of standard form contracts. This article develops these ideas by focusing on property law’s role in underpinning corporate enterprise. Rights to control assets are a significant mechanism of governance in the firm. Practical circumstances dictate that such rights must be shared. Property law protects the rights of co-owners against each other’s opportunistic attempts to grant entitlements to t hird parties. At the same time, it uses a range of strategies to minimise the costs such protection imposes on third parties. The choice of strategy significantly affects co-owners’ freedom to customise their control-sharing arrangements. This theory is applied to give an account of the ‘proprietary foundations’ of corporate law, which has significant implications for the way in which the subject’s functions are understood and evaluated. |
| Keywords: | theory of corporate law, shared ownership, property rights |
| JEL: | D23 G34 K11 K22 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp299&r=reg |
| By: | John Armour; Douglas Cumming |
| Abstract: | Entrepreneurs, catalysts for innovation in the economy, are increasingly the object of policymakers’ attention. Recent initiatives both in the UK and at EU level have sought to promote entrepreneurship by reducing the harshness of the consequences of personal bankruptcy law. Whilst there is an intuitive link between the two, little attention has been paid to the question empirically. We investigate the link between bankruptcy and entrepreneurship using data on self employment over 13 years (1990-2002) and 15 countries in Europe and North America. We compile a new index of the level of how ‘forgiving’ personal bankruptcy laws are, reflecting the time to discharge. This measure varies over time and across the countries studied. We show that bankruptcy law has a more statistically and economically significant effect on self employment rates relative to GDP growth, MSCI stock returns, and a variety of other legal and economic factors. The results have clear implications for policymakers. |
| Keywords: | Personal Bankruptcy Law, Entrepreneurship |
| JEL: | K35 M13 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp300&r=reg |
| By: | Meredith Fowlie (University of California, Berkeley); Jeffrey Perloff (University of California, Berkeley, and Giannini Foundation) |
| Abstract: | According to the Coase theorem, if property rights to pollute are clearly established and emissions markets nearly eliminate transaction costs, the market equilibrium will be independent of how the permits are initially allocated across firms. Using panel data from Southern California's RECLAIM program, we find that initial allocations are a statistically significant determinant of firm-level emissions. This relationship between allocation and emissions is stronger among firms with relatively high transaction costs. Thus, care must be exercised in the initial allocation of permits to ensure efficiency. |
| Keywords: | emissions trading, transaction costs, |
| Date: | 2004–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:agrebk:968&r=reg |
| By: | Alain de Janvry (University of California, Berkeley); Elisabeth Sadoulet (University of California, Berkeley) |
| Abstract: | Temptation for tenants to under-report output levels under share contracts is undoubtedly high. There is evidence that theft of product occurs and that this affects the design of share contracts. In this case, the optimal output share is chosen to not only induce effort but also to reduce theft of product, while meeting the landlord's limited liability obligation. The tenant's share thus rises with his desire and ability to steal. The optimal contract allows both residual inefficiency in the provision of effort and residual cheating. This contract is also modified by process utility in cheating, ability of the landlord to supervise, risk of revenge with abusive surveillance, and switch to products less prone to theft. |
| Keywords: | Sharecropping, cheating, agrarian contract, |
| Date: | 2004–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:agrebk:980&r=reg |
| By: | Karen Macours (Johns Hopkins University); Alain de Janvry (University of California, Berkeley); Elisabeth Sadoulet (University of California, Berkeley) |
| Abstract: | This paper analyzes the effects of insecure property rights over land on the functioning of the land rental market in the Dominican Republic. It shows that insecurity of property rights not only reduces sharply the level of activity on the land rental market, but also causes market segmentation. A principal-agent framework is used to model the landlord's utility maximization, where he takes into account the risk of losing the land when it is not traded within a narrow local circle of confidence. Using data collected with a methodology that enables to characterize the entire market, we show that insecure property rights lead to matching in the tenancy market along socio-economic lines and hence severely limit access to land for the rural poor. Simulations suggest that improving tenure security would increase the total area rented to the poor by 63%. While a small fraction of this gain is achieved via formal titling, most is obtained through reducing conflicts over land and enhancing protection of property rights. Results also show the importance of minimum working capital endowments for the poor in gaining access to land in the rental market. |
| Keywords: | agricultural land, land rights, property rights, rents, tenancy, |
| Date: | 2004–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:agrebk:992&r=reg |
| By: | Galbiati,Roberto; Vertova,Pietro (Tilburg University, Center for Economic Research) |
| Abstract: | Laws consist of two components: the 'obligations' they express and the 'incentives' designed to enforce them. In this paper we run a public good experiment to test whether or not obligations have any independent effect on cooperation in social dilemmas. The results show that, for given marginal incentives, different levels of minimum contribution required by obligation determine significantly different levels of average contributions. Moreover, unexpected changes in the minimum contribution set up by obligation have asymmetric dynamic effects on the levels of cooperation: a reduction does not alter the descending trend of cooperation, whereas an increase induces a temporary re-start in the average level of cooperation. Nonetheless, obligations per se cannot sustain cooperation over time. |
| JEL: | C91 C92 H26 H41 K40 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200556&r=reg |
| By: | Goergen,Marc; Martynova,Martina; Renneboog,Luc (Tilburg University, Center for Economic Research) |
| Abstract: | This paper contributes to the research on corporate governance by predicting the effects of European takeover regulation. In particular, we investigate whether the recent reforms of takeover regulation in Europe are leading to a harmonization of the national legislations. With the help of 150 corporate governance lawyers from 30 European countries, we collected the main changes in takeover regulation. We assess whether a process of convergence towards the Anglo-(American) corporate governance system has been started and we find that this is the case. We make predictions as to the consequences of the reforms for the ownership and control. However, we find that, while in some countries the adoption of a unified takeover code may result in dispersed ownership, in others it may further consolidate the blockholder-based system. |
| JEL: | G3 G34 G38 K2 K22 K40 G32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200563&r=reg |
| By: | Samiran Banerjee; João E. Gata |
| Abstract: | We present a two-period dynamic model of standard setting under asymmetric information to model the attempts by the Califormia Air Resources Board (CARB) in getting car manufacturers to comply with its phase-in of stringent emissions standards. After CARB chooses an initial emissions standard that ?rms are required to comply with, automakers respond by choosing R&D investment and production levels which provide CARB an imperfect signal whether they are more or less capable of complying with the standard. CARB resets the environmental standard and the ?rms once again choose research and production levels. Firms are Cournot duopolists in the product market and can choose to do research noncooperatively or cooperatively in the presence of spillovers. We show that ?rms will behave strategically and underinvest in research both under competitive and cooperative R&D, though the level of underinvestment — the ratchet effect — is greater under cooperative R&D when spillovers are large. We uncover a fundamental con?ict between the incentives of ?rms to do cooperative research and social welfare: that ?rms will want to engage in cooperative (resp. noncooperative) R&D only when spillovers are low (resp. high) while social welfare is greater under noncooperative (resp. cooperative) research. |
| Keywords: | Car emissions; dynamic technology-forcing regulation; selfregulation; pre-commitment; cooperative R&D; ratchet effect. |
| JEL: | L5 O3 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp162004&r=reg |