nep-reg New Economics Papers
on Regulation
Issue of 2005‒11‒09
four papers chosen by
Christian Calmes
Université du Québec en Outaouais, Canada

  1. China’s banking reform: An assessment of its evolution and possible impact By Alicia Garcia-Herrero; Sergio Gavila; Daniel Santabarbara
  2. A Political Economy Model of Regulation Explained Through Fuzzy Logics By Elizabeth Real Oliveira; Manuela Castro e Silva
  3. Illegal immigration and a heterogeneous labour force. When can quotas generate an internal conflict? By Gemma Larramona; Jesus Clemente; Pedro Garcia-Castrillo
  4. The Impact of Direct Democracy on Crime: Is the Median Voter Boundedly Rational? By Justina A.V. Fischer

  1. By: Alicia Garcia-Herrero (Bank of Spain); Sergio Gavila (Bank of Spain); Daniel Santabarbara (Bank of Spain)
    Abstract: The Chinese banking system, characterized by massive government intervention, poor asset quality and low capitalization, has started a reform process based on three main pillars: (i) bank restructuring, through the cleaning-up of non-performing loans and public capital injections, particularly in the four largest state-owned banks; (ii) financial liberalization, with the gradual flexibilization of quantity and price controls, the opening-up to foreign competition and cautious steps toward capital account liberalization; and (iii) strengthened financial regulation and supervision, coupled with efforts to improve corporate governance and transparency. Although the reform is still ongoing, our preliminary assessment indicates that changes are needed for the reform to be fully successful. Asset quality has improved, particularly in the recapitalized banks, but there is a high risk of a new build-up of non performing loans. Capitalization has increased in the largest banks, as a consequence of the government capital injections, but it generally remains low and profitability has fallen even further. China’s huge financing needs, to maintain high economic growth, and its commitment to fully open up its banking system to foreign competition urgently require a more comprehensive and time-bound strategy, with a long-term vision of the desired structure of the Chinese banking system. Bank recapitalization should be completed immediately, not only to ensure bank soundness, but also to increase profitability, which could be affected negatively as competition increases with full financial liberalization. Bank recapitalization, however, needs to be accompanied by a radical improvement in corporate governance, which would clearly be facilitated by a change in the property structure.
    Keywords: Chinese financial system, financial reform, bank restructuring, financial liberalization, bank regulation and supervision.
    JEL: E44 E66 G2 G21
    Date: 2005–08–22
  2. By: Elizabeth Real Oliveira; Manuela Castro e Silva
    Abstract: The basic problem of environmental regulation involves the government trying to induce a polluter to take socially desirable actions, which ostensibly are not in the best interest of the polluter. But the government may not always be able to precisely control the polluter. To further complicate matters the government faces a complex problem of determining exactly what level of pollution is best for society. In reality the government faces pressures from consumers and polluters. There are some important lessons to gather from the analysis of current models of regulation. One is that there are many imperfect links between the legislature and the pollution-generating process. In this case regulation may be excessively costly, may result in considerable cheating, and may result in excessive pollution. Another lesson is that legislature does not necessarily act as an efficient benevolent maximizer of social well-being. The authors intend in this paper to explain the current view of political models of regulation, analysing them for their complexity, and attempt to provide a reasonable explanation of their functioning recurring to fuzzy logics. Understanding how the browns and greens interact with the legislature and regulatory agencies can to some extent explain the current environmental regulations. The fuzzy approach, intends to allow for easier understanding of these interactions, and provide an answer for more effective decision making. Keywords: Environmental Regulation, Environmental Economics, Fuzzy Logics, Models, Pollution Control, Sustainability
    Date: 2004–08
  3. By: Gemma Larramona; Jesus Clemente; Pedro Garcia-Castrillo
    Abstract: In this paper we analyze the effects on the welfare of heterogeneous native workers in the context of the presence of legal and illegal immigrants, and where the main instrument of economic policy takes the form of entry quotas. In the framework of a model of overlapping generations, we find that these effects are not monotonous. More particularly, we note that in certain circumstances the effects on the native workers of a change in the quota are opposite in nature, depending on whether or not these workers are qualified. The key aspect of this result is, on the one hand, the effect of illegal immigration on wages and, on the other, the part of income generated by the illegal immigrants that is appropriated by the natives for managing this “informal” labour market. Keywords: Illegal immigration; entry quotas; qualification. JEL: F22, J61,J68.
    Date: 2004–08
  4. By: Justina A.V. Fischer
    Abstract: Direct democracy is believed to lead to an allocation of resources that is closer to the median voter's preferences. If, however, the median voter suffers from bounded rationality, the allocation of public goods actually achieved should be affected. Based on recent empirical findings by economic psychologists, optimism bias and availability heuristic are assumed to influence the median voter's preferences for public safety; particularly, (1) a preference for lower spending on crime prevention and (2) a preference for fighting property crime to fighting violent crime is hypothesized. In consequence, in more direct democratic systems, a re-allocation of scarce means in favor of property crimes should be observed. Estimation of a structural economic model of crime using Swiss cantonal crime rates from 1986 to 2001 corroborates these hypotheses.
    JEL: K42 D80 D70
    Date: 2005–07

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