|
on Regulation |
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Issue of 2006‒04‒08
sixteen papers chosen by Christian Calmes Universite du Quebec en Outaouais, Canada |
| By: | David Newbery |
| Abstract: | Should regulation of potentially competitive elements of network utilities be left with sector regulators or solely subject to normal competition laws? Britain evolved licenses for network activities overseen by regulators while the EU places more emphasis on making sector regulation consistent with competition law. The paper discusses the appropriateness of the competition law approach for telecoms and electricity. Post-modern utilities like telecoms, in which facilities-based competition is possible, lend themselves to the approach laid out in the Communications Directives, and its application to mobile call termination is discussed. Electricity, where collective dominance is more likely, does not fit comfortably into this approach. Instead, licence conditions retain advantages where it may be necessary to modify market rules in a timely and well-informed manner, as exemplified by the English Electricity Pool. |
| Keywords: | Regulation, competition policy, telecommunications, electricity, market power |
| JEL: | G18 L94 L96 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0631&r=reg |
| By: | Franklin Allen (The Wharton School, University of Pennsylvania); Elena Carletti (Center for Financial Studies); Robert Marquez (Robert h. Smith School of Business, University of Maryland) |
| Abstract: | Market discipline for financial institutions can be imposed not only from the liability side, as has often been stressed in the literature on the use of subordinated debt, but also from the asset side. This will be particularly true if good lending opportunities are in short supply, so that banks have to compete for projects. In such a setting, borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending, thus creating an asset market-based incentive for banks to hold capital. Borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans, which accrue only if the loans are in fact paid o.. Since borrowers do not fully internalize the cost of raising capital to the banks, the level of capital demanded by market participants may be above the one chosen by a regulator, even when capital is a relatively costly source of funds. This implies that capital requirements may not be binding, as recent evidence seems to indicate. |
| Keywords: | Banking, Costly Capital, Asset Side Market Discipline |
| JEL: | G21 G38 |
| Date: | 2005–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200523&r=reg |
| By: | Cremer, Helmuth; Pestieau, Pierre |
| Abstract: | This paper develops a simple model of piracy to analyze its effects on prices and welfare and to study the optimal enforcement policy. A monopolist produces an information good (involving a 'large' development cost and a 'small' reproduction cost) that is sold to two groups of consumers differing in their valuation of the good. We distinguish two settings: one in which the monopoly is regulated and one in which it maximizes profits and is not regulated, except that the public authority may be responsible for the control of piracy. We show that copying or piracy might be welfare enhancing because it is a way to 'provide' the good to some individuals (those with a low willingness to pay) without undermining the firm’s ability to finance the development cost via the pricing scheme applied to high valuation consumers. The level of piracy control differs according to the regulatory environment. Three levels of piracy control emerge. The highest is the one chosen by the private monopoly. The next level is the one chosen by the regulated monopoly. The lowest, that can be zero, is the level of control chosen by the public authority when the good is sold (and priced) by a private monopoly. |
| Keywords: | copying; information good; intellectual property; piracy |
| JEL: | D82 L11 L86 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5556&r=reg |
| By: | Vandenbussche, Hylke; Zanardi, Maurizio |
| Abstract: | Advocates of antidumping (AD) laws downplay their effects by arguing that the trade flows that are subject to AD are small and their distortions negligible. This paper is the first to counter that notion by quantifying the worldwide effect of AD laws on aggregate trade flows. The recent proliferation of AD laws across countries provides us with a natural experiment to estimate the trade effects of adopting versus using AD laws; differences in the intensity of use among countries with older AD laws allow us to investigate reputation effects. For this purpose, we estimate worldwide trade flows using a gravity equation spanning 21 years (1980-2000) of annual observations. Our estimates confirm that AD effects are not small. Among other findings, new tough users have their aggregate imports depressed by US$15.7bn a year (or 6.7%) as a result of the AD measures they have imposed. For a traditional user like the United States, current AD measures depress annual imports by almost US$20bn on top of the cumulative negative effect of reputation. For some countries, the dampening effects of AD laws on trade flows are found to nearly offset the gains from trade liberalization. |
| Keywords: | antidumping; gravity equation; trade flows; trade liberalization |
| JEL: | F13 F14 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5597&r=reg |
| By: | Axel Dreher; Friedrich Schneider |
| Abstract: | This paper analyzes the influence of the shadow economy on corruption and vice versa. We hypothesize that corruption and shadow economy are substitutes in high income countries while they are complements in low income countries. The hypotheses are tested for a cross-section of 120 countries and a panel of 70 countries for the period 1994-2002. Our results show that the shadow economy reduces corruption in high income countries, but increases corruption in low income countries. We also find that stricter regulations increase both corruption and the shadow economy. |
| Keywords: | corruption, shadow economy, regulation, tax burden |
| JEL: | D73 H26 O17 O50 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1653&r=reg |
| By: | Laszlo Goerke |
| Abstract: | Firms may evade taxes on profits and can also avoid fulfilling legal restrictions on production activities by bribing bureaucrats. It is shown that the existence of tax evasion does not affect corruption activities at the firm level, while the budgetary repercussions of tax evasion induce less corruption. Policy measures which alter the gains or losses from corruption have a non-systematic impact on tax evasion behaviour. |
| Keywords: | corruption, firms, tax evasion |
| JEL: | D73 H25 H26 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1666&r=reg |
| By: | Gorodnichenko, Yuriy; Sabirianova Peter, Klara |
| Abstract: | This study is the first to provide a systematic measure of bribery using micro-level data on reported earnings, household spending and asset holdings. We use the compensating differential framework and the estimated sectoral gap in reported earnings and expenditures to identify the size of unobserved (unofficial) compensation (i.e., bribes) of public sector employees. In the case of Ukraine, we find that public sector employees receive 24-32% less wages than their private sector counterparts. The gap is particularly large at the top of the wage distribution. At the same time, workers in both sectors have essentially identical level of consumer expenditures and asset holdings that unambiguously indicate the presence of non-reported compensation in the public sector. Using the conditions of labour market equilibrium, we develop an aggregate measure of bribery and find that the lower bound estimate of the extent of bribery in Ukraine is between 460m and 580m U.S. dollars (0.9-1.2% of Ukraine’s GDP in 2003). |
| Keywords: | bribery; corruption; public sector; Ukraine; wage; wage differentials |
| JEL: | J3 J4 O1 P2 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5585&r=reg |
| By: | Julián Messina (European Central Bank, University of Salerno and IZA Bonn); Giovanna Vallanti (London School of Economics) |
| Abstract: | We exploit homogeneous firm level data of manufacturing and non-manufacturing sectors to study the impact of firing restrictions on job flow dynamics across 14 European countries. We find that more stringent firing laws dampen the response of job destruction to the cycle, thus making job turnover less counter-cyclical. Moreover, the impact of firing costs on job creation and job destruction varies across sectors, depending on sector-specific trend growth. Our findings clearly suggest that such costs are more important in contracting than in growing sectors. |
| Keywords: | gross job flows, Europe, business cycle, firing costs |
| JEL: | J23 J63 J68 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2045&r=reg |
| By: | Naci Mocan (University of Colorado at Denver and NBER); Erdal Tekin (Georgia State University, NBER and IZA Bonn) |
| Abstract: | Using data from three waves of Add Health we find that being very attractive reduces a young adult's (ages 18-26) propensity for criminal activity and being unattractive increases it for a number of crimes, ranging from burglary to selling drugs. A variety of tests demonstrate that this result is not because beauty is acting as a proxy for socio-economic status. Being very attractive is also positively associated adult vocabulary test scores, which suggests the possibility that beauty may have an impact on human capital formation. We demonstrate that, especially for females, holding constant current beauty, high school beauty (pre-labor market beauty) has a separate impact on crime, and that high school beauty is correlated with variables that gauge various aspects of high school experience, such as GPA, suspension or having being expelled from school, and problems with teachers. These results suggest two handicaps faced by unattractive individuals. First, a labor market penalty provides a direct incentive for unattractive individuals toward criminal activity. Second, the level of beauty in high school has an effect on criminal propensity 7-8 years later, which seems to be due to the impact of the level of beauty in high school on human capital formation, although this second avenue seems to be effective for females only. |
| Keywords: | beauty, crime, criminal, ugly, physical attractiveness |
| JEL: | I1 I2 K4 J2 J3 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2048&r=reg |
| By: | Galina Hale; Assaf Razin; Hui Tong |
| Abstract: | We find an empirical regularity that stronger creditor protection reduces the volatility of stock market prices. We analyze two distinct mechanisms that characterize equity price volatility: government guarantees and creditor protection. Using a Tobin q model, we demonstrate that weak creditor protection that gives rise to government guarantees and tightens credit constraints, increases stock price volatility. Empirically, accounting for the probability of financial crises, we find that government guarantees and weak institutions that tighten credit constraints increase aggregated stock price volatility. |
| JEL: | F3 G3 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12127&r=reg |
| By: | S Jahjah; P Montiel |
| Abstract: | Motivated by the experiences of Mexico and Argentina, we explore a model intended to capture the interactions among exchange rate policy, fiscal policy, and default on foreign currency-denominated debt. Our objective is to examine how exchange rate policy affects the supply of short-term debt facing the government. We show that under a conventional soft peg, it can be optimal for the government to choose a level of the exchange rate that may result in partial or complete debt default, as in the Mexican case. Paradoxically, default may also be an equilibrium outcome under a hard peg, as in the case of Argentina, precisely because devaluation is not an option. Multiple equilibria may exist under a soft peg, with one equilibrium featuring a high domestic interest rate, an overvalued exchange rate, a low level of output, and a high default probability. Under a hard peg, however, there is a unique equilibrium. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:70&r=reg |
| By: | Ramello, Giovanni |
| Abstract: | The aim of this paper is to summarise the extant theory as it relates to the economics of trademark, and to give some suggestions for further research with reference to distinct streams ofliterature. The proposed line of study inevitably looks at the complex relationship between signs and economics. Trademark is a sign introduced to remedy a market failure. It facilitates purchase decisions by indicating the provenance of the goods, so that consumers can identify specific quality attributes deriving from their own, or others', past experience. Trademark holders, on their part, have an incentive to invest in quality because they will be able to reap the benefits in terms of reputation. In other words, trademark law becomes an economic device which, opportunely designed, can produce incentives for maximising market efficiency. This role must, of course, be recognised, as a vast body of literature has done, with its many positive economic consequences. Nevertheless, trademark appears to have additional economic effects that should be properly recognized: it can determine the promotion of market power and the emergence of rent-seeking behaviours. It gives birth to an idiosyncratic economics of signs where very strong protection tends to be assured, even though the welfare effects are as yet poorly understood. In this domain much remains to be done and the challenge to researchers is open. |
| Keywords: | trademark, brand, economics and signs, asymmetric information, intellectual property rights, law and economics |
| URL: | http://d.repec.org/n?u=RePEc:uca:ucapdv:67&r=reg |
| By: | Tina Søreide |
| Abstract: | A recent business survey in Norway reveals that firms rarely react to corruption, even when they have lost important contracts as a result. This disinclination to take action is explored in the light of market structures, business efficiency, judicial institutions and political corruption. The paper develops a theory about how these four variables deter firms from reacting against corruption, and, in particular, how the potential for collusion reinforces the incentives to remain silent. Considered separately, each of the factors are unable to explain the low frequency of anti-corruption reactions between firms. Considered in combination, however, the various impediments suggest a more complete explanation: When conditions in market structure suggest that the best response would be to take action, political conditions may favour inaction. When a potential whistle-blower expects support from local politicians or legal institutions, the given offender may be impervious to sanctions; its role in the market will not be altered by the given case. The sum of precondition for action suggests that firms rarely react against corruption. JEL L10, K42 |
| Keywords: | Corruption Whistleblowing Industrial organization Collusion JEL L10, K42 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:chm:wpaper:wp2006-5&r=reg |
| By: | Peter Bardsley; Quan Nguyen |
| Abstract: | We model rent seeking in litigation in weak legal systems as a Tulloch contest in which litigators may seek to influence the court directly through bribery as well as through the merit of the legal case that they bring. If the local firm has a competitive advantage in influencing the court then there is a strategic asymmetry between the players: the local firm regards expenditure by the foreign firm as a strategic complement, but the foreign firm regards local expenditure as a strategic substitute. This leads to different attitudes to commitment: the local firm would like to commit to a high level of effort to influence the court, the foreign firm to a low one. There is also an asymmetry in the commitment technology. It is not easy to commit to a low level of bribery, but it is feasible to commit to a high one: once a payment is made it cannot easily be recovered. We model the interaction as a two stage game: the players simultaneously commit to a minimum level of effort, then they play a simultaneous Tulloch influence game. We find a continuum of equilibria. An equilibrium selection argument selects a unique equilibrium that is outcome equivalent to the Stackelberg equilibrium of a simple Tulloch contest in which the local firm moves first. We thus find an argument for endogenous timing: the local firm moves first and secures a first mover advantage. |
| Keywords: | judicial corruption, Tulloch contest, strategic asymmetry, commitment games, endogenous timing |
| JEL: | D73 K41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:925&r=reg |
| By: | Tina Søreide |
| Abstract: | The presence of business-corruption in a market provokes firms to make choices between legal business approaches and illegal bribery. The outcome of a chosen strategy will usually be uncertain at the time the decision is made, and a firm's decision will depend partly on its attitude towards risk. Drawing on the empirical data provided by a survey of 82 Norwegian exporting businesses, the paper proposes a theory about firm's choices between legal and illegal business practices. It begins by describing the risks, uncertainties and benefits attached to bribery, and specifies their impact on firm's propensity to offer bribes. It then demonstrates how risk averse firms can be more inclined to offer bribes than risk neutral, and even risk attracted firms. Although the analysis diverges from existing theory in stressing the differences between illegal and legal forms of rent-seeking, the findings correspond to the results reported in the literature on legal forms of rent-seeking. JEL D81, F23, K40 |
| Keywords: | Rent-seeking Corruption Firms Risk JEL D81, F23, K40 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:chm:wpaper:wp2006-4&r=reg |
| By: | Fougère, Denis; Kramarz, Francis; Pouget, Julien |
| Abstract: | In this paper we examine the influence of unemployment on property crimes and on violent crimes in France for the period 1990 to 2000. This analysis is the first extensive study for this country. We construct a regional-level data set (for the 95 départements of metropolitan France) with measures of crimes as reported to the Ministry of Interior. To assess social conditions prevailing in the département in that year, we construct measures of the unemployment rate as well as other social, economic and demographic variables using multiple waves of the French Labor Survey. We estimate a classic Becker type model in which unemployment is a measure of how potential criminals fare in the legitimate job market. First, our estimates show that in the cross-section dimension, crime and unemployment are positively associated. Second, we find that increases in youth unemployment induce increases in crime. Using the predicted industrial structure to instrument unemployment, we show that this effect is causal for burglaries, thefts, and drug offences. To combat crime, it appears thus that all strategies designed to combat youth unemployment should be examined. |
| Keywords: | crime; youth unemployment |
| JEL: | J19 J64 J65 K42 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5600&r=reg |