nep-reg New Economics Papers
on Regulation
Issue of 2005‒12‒01
eighteen papers chosen by
Christian Calmes
Université du Québec en Outaouais, Canada

  1. Regulatory reforms in selected EU network industries By Reiner Martin; Moreno Roma; Isabel Vansteenkiste
  2. The Role of Incentive Design in Parliamentarian Anti-Corruption Programmes By Bryane Michael
  3. The Welfare Cost of Bank Capital Requirements By Skander Van den Heuvel
  4. Liability for Accidents By Steven Shavell
  5. The Theory of Public Enforcement of Law By A. Mitchell Polinsky; Steven Shavell
  6. Can Environmental Regulations be Good for Business? an Assessment of the Porter Hypothesis By Ambec, Stefan; Barla, Philippe
  7. Job Security and Job Protection By Andrew Clark; Fabien Postel-Vinay
  8. Ex Ante Versus Ex Post Regulation of Bank Capital By Arup Daripa; Simone Varotto
  9. CRIME AND PUNISHMENT WITH HABIT FORMATION By Vladimir Kühl Teles; Joaquim P. Andrade
  10. Crime and Police Resources: The Street Crime Initiative By Stephen Machin; Olivier Marie
  11. Corruption and Foreign Direct Investment, What kind of relationship is there? By José Manuel Martins Caetano; António Caleiro
  12. Courts and contractual innovation: a preliminary analysis By Mitchell Berlin; Yaron Leitner
  13. Corruption as Betrayal : Experimental Evidence on Corruption Under Delegation By Nicolas Jacquemet
  14. Social status and crime By Emrah Arbak
  15. Crime, punishment and social norms By Weibull, Jörgen; Villa, Edgar
  16. Crime, Location and the Housing Market By Zenou, Yves
  17. Unreported Labour By Ognedal, Tone; Barth, Erling
  18. Individual Perceptions of the Criminal Justice System By Lance Lochner

  1. By: Reiner Martin (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Moreno Roma (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Isabel Vansteenkiste (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In the course of the 1990s, the EU has embarked on an ambitious regulatory reform programme for a number of European network industries, such as telecommunications, energy and transport. This paper analyses the potential benefits of successful reforms in these sectors with a focus on the price effects of regulatory reforms. Following a review of the existing empirical literature in this field, the paper discusses the evolution of the current regulatory framework for network industries in the EU. An empirical analysis of the main determinants of recent price developments in these industries provides evidence that regulatory reform measures had a substantial downward impact on prices in the four sectors under review.
    Keywords: Network Industries, Panel Data, Price effects, Regulatory Reforms.
    JEL: E30 L33 L51 L93 L94 L95 L96
    Date: 2005–04
  2. By: Bryane Michael (Oxford University)
    Abstract: The “first wave” of donor sponsored anti-corruption programmes usefully focused on elaborating recommendations for parliamentarians or tried to train them (develop human capital) in anti-corruption. Now it time for these programmes to take into account parliamentarian incentives to adopt these recommendations and/or use this “knowledge.” This paper will discuss these incentives and the ways these programmes should and can help build political capital by managing voter demands, political competition, patronage, and enforcement. The paper also reviews some basic theories from formal political economy which may be of interest to practitioners interested in bridging the theory-practice gap.
    Keywords: anti-corruption, incentive design, incentive compatibility
    JEL: D1 D2 D3 D4
    Date: 2005–11–22
  3. By: Skander Van den Heuvel (Finance Department University of Pennsylvania)
    Keywords: Bank capital requirements, Welfare, Sidrauski model
    JEL: E44 G28
    Date: 2005
  4. By: Steven Shavell
    Abstract: This is a survey of legal liability for accidents. Three general aspects of accident liability are addressed. The first is the effect of liability on incentives, both whether to engage in activities (for instance, whether to drive) and how much care to exercise (at what speed to travel) to reduce risk when so doing. The second general aspect concerns risk-bearing and insurance, for the liability system acts as an implicit insurer for accident victims and it imposes risk on potential injurers (because they may have to pay judgments to victims). In this regard, victims' accident insurance and injurers' liability insurance are taken into account. The third general aspect of accident liability is its administrative expense, comprising the cost of legal services, the value of litigants' time, and the operating cost of the courts. A range of subtopics are considered, including product liability, causation, punitive damages, the judgment-proof problem, vicarious liability, and nonpecuniary harm. Liability is also compared to other methods of controlling harmful activities, notably, to corrective taxation and to regulation.
    JEL: D00 D6 D8 K00
    Date: 2005–11
  5. By: A. Mitchell Polinsky; Steven Shavell
    Abstract: This chapter of the forthcoming Handbook of Law and Economics surveys the theory of the public enforcement of law – the use of governmental agents (regulators, inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. The theoretical core of our analysis addresses the following basic questions: Should the form of the sanction imposed on a liable party be a fine, an imprisonment term, or a combination of the two? Should the rule of liability be strict or fault-based? If violators are caught only with a probability, how should the level of the sanction be adjusted? How much of society’s resources should be devoted to apprehending violators? We then examine a variety of extensions of the central theory, including: activity level; errors; the costs of imposing fines; general enforcement; marginal deterrence; the principal-agent relationship; settlements; self-reporting; repeat offenders; imperfect knowledge about the probability and magnitude of sanctions; corruption; incapacitation; costly observation of wealth; social norms; and the fairness of sanctions.
    JEL: D23 D62 D63 H23 H26 K14 K42
    Date: 2005–11
  6. By: Ambec, Stefan; Barla, Philippe
    Abstract: The Porter hypothesis asserts polluting firms can benefit from environmental policies, arguing that well-designed environmental regulations stimulate innovation, which by increasing either productivity or product value, leads to private benefits. As a consequence, environmental regulations would benefit both society and regulated firms. This point of view has found a receptive audience among policy makers and the popular press but has been severely criticized by economists. In this paper, we present some of the arguments in this debate and review the empirical evidence available so far in the economic literature.
    Keywords: Porter Hypothesis, Environmental Regulations, Competitiveness
    JEL: Q50 Q52 Q55
    Date: 2005
  7. By: Andrew Clark; Fabien Postel-Vinay
    Abstract: We construct indicators of the perception of job security for various types of jobs in 12 European countriesusing individual data from the European Community Household Panel (ECHP). We then consider the relationbetween reported job security and OECD summary measures of Employment Protection Legislation (EPL)strictness on one hand, and Unemployment Insurance Benefit (UIB) generosity on the other. We find that, aftercontrolling for selection into job types, workers feel most secure in permanent public sector jobs, least secure intemporary jobs, with permanent private sector jobs occupying an intermediate position. We also find thatperceived job security in both permanent private and temporary jobs is positively correlated with UIBgenerosity, while the relationship with EPL strictness is negative: workers feel less secure in countries wherejobs are more protected. These correlations are absent for permanent public jobs, suggesting that such jobs areperceived to be by and large insulated from labor market fluctuations.
    Keywords: Perceived Job Security, Employment Protection Legislation, Unemployment Insurance Benefits
    JEL: J28 J65 I31
    Date: 2005–02
  8. By: Arup Daripa (School of Economics, Mathematics & Statistics, Birkbeck College); Simone Varotto
    Abstract: The current debate on the new Basel Accord gives rise to a natural question about the appropriate form of capital regulation. We construct a simple framework to analyze this issue. In our model the risk carried by a bank as well as managerial risk preference are a bank’s private information. We show that ex ante constraints waste the superior risk information of a bank, while an ex post regime makes full use of it. However, the latter is more vulnerable to the problem of unknown managerial risk-aversion. The results imply that the two regimes are complements, rather than substitutes. Further, under plausible conditions, an ex post regime emerges as the dominant element of the optimal combination. We use the results to shed light on current policy concerns. In particular, our results provides theoretical underpinning for the inclusion of pillar 2 alongside pillar 1 in Basel II.
    Keywords: Ex Post Regulation, Asymmetric Information, Safety Loss, Overprotection Loss, Safety Bias, Basel II.
    JEL: G28 D82 L51
    Date: 2005–11
  9. By: Vladimir Kühl Teles; Joaquim P. Andrade
    Abstract: Moral concepts affect crime supply. This idea is modelled assuming that illegal activities is habit forming. We introduce habits in a intertemporal general equilibrium framework to illegal activities and compare its outcomes with a model without habit formation. The findings are that habit (i) reduces the crime level; (ii) reduces the marginal effect of illegal activities return on crime; (iii) reduces the efficacy of punishment.
    JEL: K42 K14
    Date: 2005
  10. By: Stephen Machin; Olivier Marie
    Abstract: In this paper we look at links between police resources and crime in a different way to theexisting economics of crime work. To do so we focus on a policy intervention - the StreetCrime Initiative - that was introduced in England and Wales in 2002. This allocatedadditional resources to some police force areas to combat street crime, whereas other forcesdid not receive any additional funding. Estimates derived from several empirical strategiesshow that robberies did fall significantly in SCI police forces relative to non-SCI forces afterthe initiative was introduced. Moreover, the policy seems to have been a cost effective one.There is some heterogeneity in this positive net social benefit across different SCI policeforces, suggesting that some police forces may have made better use of the extra resourcesthan others. Overall, we reach the conclusion that increased police resources do in fact leadto lower crime, at least in the context of the SCI programme we study.
    Keywords: Street crime, Police resources, Cost effectiveness
    JEL: H00 H5 K42
    Date: 2005–03
  11. By: José Manuel Martins Caetano (Department of Economics, University of Évora); António Caleiro (Department of Economics, University of Évora)
    Abstract: Globalization and technological innovations create investment opportunities for firms worldwide. In fact, while firms pursue foreign direct investment (FDI) opportunities on a global basis, countries compete to attract these flows. Investment decisions by firms depend on complex and distinct factors. In particular, in the case of foreign investment one of these factors relates to the perception that investors have about the level of risk and/or corruption (or transparency) that characterises countries. Recent studies suggest that corruption negatively impacts on FDI and may act as a disincentive to investment. By using information for 97 countries, concerning inward FDI performance and perceived level of corruption, this paper intends to analyse how corruption influences on the FDI. Given that a certain level of perceived corruption can, in fact, be subject to different subjective evaluations by investors, the paper uses a fuzzy logic approach in order to determine conceivable clusters in the FDI-corruption space. The use of fuzzy clustering techniques reveals the existence of two well-defined clusters: one is formed by high-level corruption countries, where, indeed, corruption is negatively correlated, in a significant way, with FDI; the other is formed by low-level corruption countries, where the influence of corruption on FDI is not so evident.
    Keywords: Corruption, Foreign Direct Investment, Fuzzy Clustering
    JEL: C49 E22 F21
    Date: 2005
  12. By: Mitchell Berlin; Yaron Leitner
    Abstract: The authors explore a model in which agents enter into a contract but are uncertain about how a judge will enforce it. The judge can consider a wide range of evidence, or instead, use a rule-based method of judgment that relies on limited information. The authors focus on the following tradeoff: Considering a wide range of evidence increases the likelihood of a correct ruling in the case at hand but undermines the formation of precedents that resolve legal uncertainty for subsequent agents. ; In a model of contractual innovation, they show that the use of evidence increases the likelihood of innovation in any period, while rule-driven judgments increase the rate of diffusion of the innovation. When courts can use a mixture of evidence and rules, the minimum amount of evidence that induces adoption is (weakly) decreasing over time. They also examine the breadth of precedents. Overlapping jurisdictions reduce the optimal breadth of precedents because broad precedents are more likely to introduce conflict. Accordingly, overlapping jurisdictions increase the value of using evidence. The authors use their model to interpret differences between the legal systems in the U.S. and England.
    Keywords: Contracts
    Date: 2005
  13. By: Nicolas Jacquemet (GATE CNRS)
    Abstract: We consider corruption behavior in a three-players game : Principal, Agent, Corrupter. When the Principal chooses a fair wage, the Agent faces con°icting interests to reciprocate. This delegation effect is expected to lower the level of corruption as compared to what arises in two-players settings. We set up two experiments varying in the exogeneity of the delegation relationship. The experimental evidence supports the delegation effect. This, in turn, could account for the deterrence effect of wage on corruption even in the absence of detection.
    Keywords: Mergers, Oligopoly, Cooperative game
    JEL: L10 L11 L20
    Date: 2005–11
  14. By: Emrah Arbak (GATE CNRS)
    Abstract: We consider a large population of agents choosing either to engage in a criminal activity or working. Individuals feel varying degrees of selfreproach if they commit criminal acts. In addition, they are concerned with their social status in society, based on others’ perceptions of their values. In making their decisions, individuals weigh both the material and social risks of being a criminal and a worker. We find that introducing social status concerns may induce multiple equilibria. We also consider the implications of intragroup and intergroup interactions in an economy with two classes of earning abilities. Typically, there is more crime in the low ability group and increasing punishment reduces crime, but the opposite may also be true.
    Keywords: Crime, Social identity, Asymmetric information, Behavioral game theory
    JEL: C72 D82 K42 Z13
    Date: 2005–11
  15. By: Weibull, Jörgen (Dept. of Economics, Stockholm School of Economics); Villa, Edgar (Boston University)
    Abstract: We analyze the interplay between economic incentives and social norms when individuals decide whether or not to engage in criminal activity. More specifically, we assume that there is a social norm against criminal activity and that deviations from the norm result in feelings of guilt or shame. The intensity of these feelings is here endogenous in the sense that they are stronger when the population fraction obeying the norm is larger. As a consequence, a gradual reduction of the sanctions against criminal activity, or of the taxation of legal incomes, may weaken the social norm against crime. Due to the potential multiplicity of equilibria in our model, such a gradual change may even induce a discontinuous increase in the crime rate. We show that law enforcement policies may have dramatic and permanent efects on the crime rate, and lead to hysteresis. We also define political equilibrium under majority rule and show how a majority of individuals, who feel no guilt or shame from violating the law, in political equilibrium can exploit a minority who do have such feelings.
    Keywords: crime; punishment; social norm; political equilibrium
    JEL: D11 D72
    Date: 2005–11–10
  16. By: Zenou, Yves (The Research Institute of Industrial Economics)
    Abstract: We highlight the role of commuting cost, location and housing market in crime decision. By assuming that all crimes are committed in the central business district and that criminals create both positive and negative externalities to each other, we find that high wages or large levels of police resources are a natural way to reduce crime. We also find that bigger cities experience higher levels of crime because of the fiercer competition in the housing market. Finally, we show that reducing commuting costs can also reduce crime because the resulting decrease in housing prices is lower for workers than for criminals.
    Keywords: Localized Crime; Housing Market; Commuting Cost
    JEL: J15 K42 R14
    Date: 2005–11–09
  17. By: Ognedal, Tone (Dept. of Economics, University of Oslo); Barth, Erling (Institute for Social Research,)
    Abstract: Unreported labour by one worker in a firm increases the probability of detection for his fellow workers, not only for himself. The firm takes this external effect into account. As a consequence, unreported work becomes rationed by the firms demand, rather than determined by demand equal supply. The gap between supply and demand increases with firm size. An empirical analysis on survey data supports theses theoretical predictions. Using a bivariate probit model, we find evidence of excess supply of unreported work in firms. We also find that the gap between supply and demand increases with firm size.
    Keywords: tax evasion; unreported labour
    JEL: H26 J20 J22 J23 J24
    Date: 2005–11–10
  18. By: Lance Lochner
    Keywords: crime, beliefs, deterrence, perceptions
    JEL: K4
    Date: 2005

This nep-reg issue is ©2005 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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