nep-reg New Economics Papers
on Regulation
Issue of 2006‒05‒27
nineteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais, Canada

  1. Should we redistribute in insolvency By John Armour
  2. Legal capital: an outdated concept By John Armour
  3. Legal origins: reconciling law and finance and comparative law By Mathias M Siems
  4. Legal diversity and regulatory competition: which model for Europe? By Simon Deakin
  5. Life insurance securitisation in Europe: An overview on the effects of alternative capital resources and its relation to regulator and IFRS guidelines. By Pieter Walhof*; André B. Dorsman; André Thibeault
  6. Steel Safeguards and the Welfare of U.S. Steel Firms and Downstream Consumers of Steel: A Shareholder Wealth Perspective By Benjamin H. Liebman; Kasaundra M. Tomlin
  7. The single European electricity market: A long road to convergence By François Coppens; David Vivet
  8. Resolution of failed banks by deposit insurers : cross-country evidence By Laeven, Luc; Beck, Thorsten
  9. Impact of Intellectual Property Rights Reforms on the Diffusion of Knowledge through FDI By Ioana Popovici
  10. Competing Ways Towards International Antitrust: the WTO versus the ICN By Mariana Bode; Oliver Budzinski
  11. The Information Content of Mandatory Disclosures By Evelyn Korn
  12. Competition Policy with Optimally Differentiated Rules Instead of "Per se Rules vs. Rule of Reason" By Arndt Christiansen and Wolfgang Kerber
  13. An Optional European Contract Law Code: Advantages and Disadvantages By Wolfgang Kerber
  14. An Economic Perspective on the Jurisdictional Reform of the European Merger Control System By Oliver Budzinski
  15. Tax Rates with Corruption: Labour-market Effects. Empirical Cross-country Comparisons on OECD Countries By Mária Lackó
  16. Federal Securities Regulations and Stock Market Returns By Tung Liu; Gary Santoni; Courtenay Cliff Stone
  17. The Effect of Taxes and Bans on Passive Smoking By Jérôme Adda; Francesca Cornaglia
  18. Optimal Government Regulations and Red Tape in an Economy with Corruption By Fabio Mendez; Facundo Sepulveda
  19. Deregulated Wholesale Electricity Prices in Italy. By Bruno Bosco; Lucia Parisio; Matteo Pelagatti

  1. By: John Armour
    Abstract: The characterisation of a security interest as 'fixed' or 'floating' has generated much litigation in English courts. This is because a floating charge is subordinated by statute to other claims in the debtor's insolvency, whereas a fixed charge is not. This paper uses the example of the floating charge to argue that such statutory redistribution between claimants in corporate insolvency is generally undesirable.
    Keywords: corporate insolvency, law and finance, history of floating charge, bankruptcy priorities, secured credit.
    JEL: G32 G33 H23 K22 N43
    Date: 2006–03
  2. By: John Armour
    Abstract: This paper reviews the case for and against mandatory legal capital rules. It is argued that legal capital is no longer an appropriate means of safeguarding creditors' interests. This is most clearly the case as regards mandatory rules. Moreover, it is suggested that even an 'opt in' (or default) legal capital regime is unlikely to be a useful mechanism. However, the advent of regulatory arbitrage in European corporate law will provide a way of gathering information regarding investors' preferences in relation to such rules. Those creditor protection rules that do not further the interests of adjusting creditors will become subject to competitive pressures. Legislatures will be faced with the task of designing mandatory rules to deal with the issues raised by Ônon-adjustingÕ creditors in a proportionate and effective manner, consistent with the Gebhard formula.
    Keywords: Corporate Law, Creditor Protection, Legal Capital, Regulatory Competition
    JEL: G32 G38 K12 K22
    Date: 2006–03
  3. By: Mathias M Siems
    Abstract: In the last few years law and finance scholars have 'discovered' the usefulness of comparative law. Their studies look at the quantifiable effect that legal rules and their enforcement have on financial development in different countries. Moreover, they link their results with the long- standing distinction between Civil Law and Common Law countries. Whether this revival of 'legal families' is a useful way forward is, however, a matter of debate. The following article challenges these studies and looks for characteristic features which are more precise and meaningful than the use of legal families as such.
    Keywords: legal origins, legal families, legal traditions, numerical comparative law, law and finance, law and development, Civil Law, Common Law
    JEL: K00 K20 K22 N20 N40 O10 P51
    Date: 2006–03
  4. By: Simon Deakin
    Abstract: Two models of regulatory competition are contrasted, one based on a US pattern of Ôcompetitive federalismÕ, the other a European conception of Ôreflexive harmonisationÕ. In the European context, harmonization of corporate and labour law, contrary to its critics, has been a force for the preservation of diversity, and of an approach to regulatory interaction based on mutual learning between nation states. It is thus paradoxical, and arguably antithetical to the goal of European integration, that this approach is in danger of being undermined by attempts, following the Centros case, to introduce a Delaware-type form of inter-jurisdictional competition into European company law.
    Keywords: corporate law, labour law, regulatory competition
    JEL: K22 K31
    Date: 2006–03
  5. By: Pieter Walhof*; André B. Dorsman; André Thibeault (Nyenrode Business Universiteit)
    Abstract: Recently Life Insurance Securitisation practices have been probed in dedicated areas to access the wider capital markets. These developments have shown a rising interest among leading insurers and reinsurers to start building experience with securitisation practices, either for risk transfer, raising additional capital or a combination of these. As these structures have proven to be cost effective and generally accepted in the banking segment it is foreseen that securitisation can become an accepted method in insurance environments too in the foreseeable future. This paper provides an overview of recent practices in Life Insurance Securitisation and aims to demonstrate that Life Insurance Securitisation has viable potential for insurance companies in the future to reduce the cost of (regulatory) capital and transferring risk to the capital markets.
    Keywords: Life Insurance Securitisation, risk transfer, capital raising
    Date: 2005
  6. By: Benjamin H. Liebman; Kasaundra M. Tomlin
    Abstract: This paper analyzes the steel safeguards implemented and subsequently removed during 2001-2003. Our results reveal that for shareholders of U.S. steel companies, safeguards generated positive “abnormal” returns of approximately 6%; and the cancellation of the safeguards resulted in wealth gains of about 5%. Steel shareholders experienced negative abnormal returns of -5% in response to the WTO ruling that the U.S. violated WTO law. The results here are consistent with the neoclassical view that producers gain at the expense of consumers. Downstream consumers in transportation equipment and electrical equipment showed the clearest negative reaction to the safeguards. Moreover, steel firms that received larger cash disbursements under the Byrd amendment received additional wealth gains when the safeguard duties were imposed. Finally, empirical results indicate that U.S. downstreamconsuming firms that diversify production in NAFTA countries avert some trade policy risk associated with the initiation of the safeguard investigation and the imposition of the safeguard duties.
    Keywords: Antidumping Policy; Welfare
    Date: 2006–05–25
  7. By: François Coppens (National Bank of Belgium, Microeconomic information Department); David Vivet (National Bank of Belgium, Microeconomic information Department)
    Abstract: In the context of a first Working Paper the authors argued that electricity has a number of characteristics that set it apart from other commodities. It was demonstrated that some of these characteristics might complicate the deregulation process. This paper analyses the ongoing deregulation process in the European electricity sector and attempts to establish whether these difficulties can more readily be solved at European level. It would appear that some problems, e.g. economies of scale in electricity generation, have less of an impact at European level than within smaller national markets. However, a number of difficulties have to be overcome before a unified European electricity market can become a reality. These include the limited interconnection capacities between Member States. The European Commission has taken steps to improve the situation, for example by offering financial support for investments and promoting the development of regional markets as an interim measure ultimately leading to a fully integrated market. Apart from the difficulties related to electricity generation and transmission there are also exogenous factors that influence the ongoing deregulation process, e.g. the implementation of the Kyoto protocol and the dramatic increases in primary fuel prices. This paper argues that a consistent, stable and uniform European regulatory framework must be put in place if the impact of these difficulties is to be minimised.
    Keywords: Electricity deregulation
    JEL: L94
    Date: 2006–05
  8. By: Laeven, Luc; Beck, Thorsten
    Abstract: There is a wide cross-country variation in the institutional structure of bank failure resolution, including the role of the deposit insurer. The authors use quantitative analysis for 57 countries and discuss specific country cases to illustrate this variation. Using data for over 1,700 banks across 57 countries, they show that banks in countries where the deposit insurer has the responsibility of intervening failed banks and the power to revoke membership in the deposit insurance scheme are more stable and less likely to become insolvent. Involvement of the deposit insurer in bank failure resolution thus dampens the negative effect that deposit insurance has on banks ' risk taking.
    Keywords: Banks & Banking Reform,Financial Crisis Management & Restructuring,Financial Intermediation,Corporate Law,Insurance & Risk Mitigation
    Date: 2006–05–01
  9. By: Ioana Popovici (Department of Economics, Florida International University)
    Abstract: This paper examines the impact of intellectual property rights (IPR) reforms on the technology flows between the U.S. and countries where U.S. multinationals have established affiliates. We use patent citations as a proxy for knowledge spillovers to examine whether the diffusion of new technology between the host countries and the U.S. is accelerated by the reforms. We test the hypothesis that strengthening patent protection facilitates knowledge flows (in the form of patent citations) between U.S. multinationals and their subsidiaries in the reforming countries and between other U.S. firms and reforming countries domestic firms. Our results suggest that the reforms favor innovative efforts of domestic firms in the reforming countries rather than U.S. affiliates efforts. In other words, reforms mediate the technology flows from the U.S. to the reforming countries.
    Keywords: intellectual property rights, patents, spillovers, R&D, FDI
    JEL: O30 O34 F23
    Date: 2006–05
  10. By: Mariana Bode; Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: In times of globalization, trade liberalization and deregulation of specific industries, competition authorities face new challenges in order to protect national as well as international competition. With companies operating in various countries, fading market frontiers and increasing crossborder trade, new strategies must be developed in order to overcome threats to domestic markets resulting of anticompetitive behavior abroad. Even though solutions such as the “Effects Doctrine” or bilateral agreements allow – albeit imperfectly – countries to protect their domestic market, there are no laws safeguarding the global economy and international competition. Thus, the request arises to establish an international competition policy regime in order to harmonize countries’ competition laws, to reduce conflicts due to cross-border anti-competitive behavior and to support developing countries in reaching Western standards. Among several approaches, two are of significant interest: On the one hand, the World Trade Organization (WTO) could be enhanced by a board of supervision for international competition issues including a harmonized competition code for all, while on the other hand the International Competition Network (ICN) has been established to take care of global competition concerns through policy coordination [Graham 2003; Janow 2003; Budzinski 2004b]. This paper discusses whether the institutional WTO or the voluntary ICN approach represents the better path to an international competition policy regime to control private anticompetitive activities. The second part will explain the importance of an international competition policy. Subsequently, unilateral, bilateral and multilateral approaches to the prevention and solution of problems in global competition are introduced. Section 3.1 gives a short overview of the WTO’s characteristics, its structural organization and its plans to integrate an international competition policy. The organization and the framework of the ICN as well as its attempts to prevent international anticompetitive behavior is explored in section 3.2. Based on the statements made in section 2 and the facts presented in section 3, the fourth section compares the WTO approach with the ICN qualities. The discussion will be divided into the following six criteria: (i) feasibility, (ii) acceptability, (iii) efficiency, (iv) negotiation and implementation of international competition rules, (v) conflict resolution and (vi) adaptability. Conclusions follow in section 5.
    Date: 2005
  11. By: Evelyn Korn (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: The information quality of mandatory financial reporting depends on two factors: (1) Are standards appropriate to produce financial statements that provide investors with sufficient information? (2) Is compliance to standards enforced by appropriate institutions? This paper addresses the question if firms should be able to create hidden reserves as an example for the effect of standards on information quality. The analysis shows that rational investors are able to correctly decipher financial statements – independent of the standards in use. The question of sufficient enforcement proves to have a deeper impact on the quality of information.
    Date: 2006
  12. By: Arndt Christiansen and Wolfgang Kerber (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: Abstract: Both in US antitrust and EU competition policy a development to a broader appli-cation of rule of reason instead of per se rules can be observed. In the European discussion the attempt to base competition policy on a "more economic approach" is mainly viewed as im-proving the economic analysis in the assessment of specific cases. In this paper it is shown from a general law and economics perspective that the application of rules instead of focus-sing on case-by-case analyses can have many advantages (less regulation costs, rent seeking and knowledge problems), although an additional differentiation of rules through a deeper assessment can also have advantages in regard to the reduction of decision errors of type I and II. After introducing the notion of a continuum of more or less differentiated rules, we show - based upon law and economics literature upon the optimal complexity of rules - in a simple model that a competition rule is optimally differentiated, if the marginal reduction of the sum of error costs (as the marginal benefit of differentiation) equals the marginal costs of differen-tiation. This model also allows for a more detailed analysis of the most important determi-nants of the optimal degree of rule-differentia¬tion. From this law and economics perspective, competition policy should consist mainly of (more or less differentiated) rules and should only rarely rely on case-by-case analysis. Therefore the main task of a "more economic ap-proach" is to use economics for the formulation of appropriate competition rules.
    Keywords: Competition Policy, European Competition Law, Rule of Reason
    JEL: K K L
    Date: 2006
  13. By: Wolfgang Kerber (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: Should the EU introduce an Optional European Contract Law Code and what should it look like? By applying economic theories of federalism and regulatory competition (legal federalism), it is shown why an Optional Code would be a very suitable legal instrument within a two-level European System of Contract Laws. By allowing private parties choice of law to a certain extent, it can combine the most important advantages of centralisation and decentralisation of competences for legal rules. Through differentiated analyses of three kinds of contract law rules (mandatory substantive rules, mandatory information rules and facilitative law), important conclusions can be reached: which kinds of contract law rules are most suitable to be applied on an optional basis (e.g. facilitative law) and which might be less so (e.g. information regulations). Furthermore a number of additional general conclusions about the design and scope of an Optional EU Code and some conclusions in regard to sales law are derived.
    Keywords: contract law, European Union, legal federalism, regulatory competition
    JEL: H7 K12 K33
    Date: 2006
  14. By: Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: The jurisdictional elements of the comprehensive 2004 reform of EU merger control are worth being analysed against the background of economic theory. Competence allocation and delimitation represent important factors for the workability of multilevel merger control regimes. The economics of federalism offer an analytical framework that can be adopted in a modified version in order to assess competence allocation regimes in competition policy. According to these theoretical insights, a given competence allocation and delimitation regime can be evaluated in regard to four criteria: internalisation of externalities, cost efficiency (the one-stop-shop principle), preference orientation, and adaptability. The ‘old’ competence allocation and delimitation regime of EU merger control consisted of two elements: turnover thresholds and post-notification referrals. Analysis along the lines of the economics of federalism reveals considerable deficiencies of the ‘old’ regime. Thus, the results of the theoretical analysis are compatible to the dissatisfying empirical experience, which represented a major motivation for launching the reform process. However, the actual reform eventually left the turnover thresholds untouched. The main element of the jurisdictional reform was the introduction of pre-notification referrals and the addition of institutionalised network cooperation.
    Keywords: competence allocation, economics of federalism, jurisdictional reform.
    Date: 2006
  15. By: Mária Lackó (Institute of Economics, Hungarian Academy of Sciences)
    Abstract: The paper investigates how tax rates, corruption and institutional aspects of the labour market influence the size of the segments of the labour market such as unemployment, employment, self-employment and activity in the hidden economy. The novelty of our approach is the theoretical justification of the interaction between the perception of taxes and of corruption, as well as the establishment of a new concept and variable, the subjective tax rate. Alternative regression calculations are carried out on data for OECD countries for the period 1995 to 2000. The tests confirm the validity of the new variable and the results imply the need for a more sophisticated policy approach for influencing labour market outcomes.
    Keywords: Taxation, corruption, labour market, hidden economy
    JEL: D73 J2 H26
    Date: 2006–05–15
  16. By: Tung Liu (Department of Economics, Ball State University); Gary Santoni (Department of Economics, Ball State University); Courtenay Cliff Stone (Department of Economics, Ball State University)
    Abstract: This paper examines the impact of federal securities statutes (seven major legislative acts and 535 amendments) on the mean and variance of total real U.S. stock market returns. In contrast to previous work, this study controls for the persistence of the variability of stock returns, employs a longer time period, utilizes a broader array of stocks and examines the impact of seven federal securities regulations and their selected amendments from 1933 through 2001. Despite the popular appeal of this legislation, our results indicate that these federal securities statutes and amendments have had no statistical impact on the mean or variance of total real stock returns over the past 70 years.
    Keywords: stock returns, volatility, regulation
    JEL: G14 G18
    Date: 2005–01
  17. By: Jérôme Adda; Francesca Cornaglia
    Abstract: This paper evaluates the effect of excise taxes and bans on smoking in public places on the exposure to tobacco smoke of non-smokers. We use a novel way of quantifying passive smoking: we use data on cotinine concentration- a metabolite of nicotine- measured in a large population of non-smokers over time. Exploiting state and time variation across US states, we reach two important conclusions. First, excise taxes have a significant effect on passive smoking. Second, smoking bans have on average no effects on non smokers. While bans in public transportation or in schools decrease the exposure of non smokers, bans in recreational public places can in fact perversely increase their exposure by displacing smokers to private places where they contaminate non smokers, and in particular young children. Bans affect socioeconomic groups differently: we find that smoking bans increase the exposure of poorer individuals, while it decreases the exposure of richer individuals, leading to widening health disparities.
    Keywords: Passive smoking, Taxes, Bans
    JEL: I1 H
    Date: 2006–01
  18. By: Fabio Mendez; Facundo Sepulveda
    Abstract: We study an economy where agents are heterogeneous in entrepreneurial ability, and may decide to become workers or entrepreneurs. The government is motivated by a production externality to impose regulations on entrepreneurship, and sets a level of red tape -administered by public officials-to test regulation compliance. In an environment where some officials are corrupt, we study what are the optimal levels of regulations and red tape, and to what extent such policies reduce the welfare losses created by corruption. For each level of externalities, we find that high and low levels of corruption create qualitatively different distortions, which in turn changes the nature and reach of optimal policies. Under low levels of corruption and externalities, the government sets low levels of regulations and minimal red tape, and with these policies achieves the first best allocation. When externalities and corruption are above a threshold, only a second best allocation can be achieved. Moreover, when externalities are large, mandating higher levels of red tape is a Pareto improving policy.
    Keywords: Corruption, optimal policy, red tape, regulations.
    JEL: D73 D60 D63 H21
    Date: 2006–03
  19. By: Bruno Bosco; Lucia Parisio; Matteo Pelagatti
    Abstract: In this paper we analyze the time series of daily average prices generated in the Italian electricity market, which started to operate as a Pool in April 2004. The objective is to characterize the high degree of autocorrelation and multiple seasonalities in the electricity prices. We use periodic time series models with GARCH disturbances and leptokurtic distributions and compare their performance with more classical ARMA-GARCH processes. The within-year seasonal variation is modelled using the low frequencies components of physical quantities, which are very regular throughout the sample. Results reveal that much of the variability of the price series is explained by deterministic multiple seasonalities which interact with each other. Periodic AR-GARCH models seem to perform quite well in mimicking the features of the stochastic part of the price process.
    Keywords: Electricity auctions, Periodic Time Series, Conditional Heteroskedasticity, Multiple Seasonalities
    JEL: D44 C22 L94 Q40
    Date: 2006–03

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