nep-reg New Economics Papers
on Regulation
Issue of 2006‒08‒26
eleven papers chosen by
Christian Calmes
Universite du Quebec en Outaouais, Canada

  1. Does Tax Evasion Affect Unemployment and Educational Choice? By Kolm, Ann-Sofie; Larsen, Birthe
  2. How do economic incentives and regulatory factors influence adoption of cardiac technologies? Result from the TECH project By Bech, Mickael; Christiansen, Terkel; Dunham, Kelly; Lauridsen, Jørgen; Lyttkens, Carl Hampus; McDonald, Kathryn; McGuire, Alistair; TECH investigators, the
  3. Parallel Imports and Price Controls By Gene M. Grossman; Edwin C.-L. Lai
  4. Is Crime Contagious? By Jens Ludwig; Jeffrey R. Kling
  5. Regulatory Exploitation and the Market for Corporate Controls By Leemore Dafny; David Dranove
  6. Corruption Perceptions vs. Corruption Reality By Benjamin A. Olken
  7. Should Governments Auction Nationwide Spectrum Licenses? Estimating Bidder Valuations By Patrick Bajari; Jeremy T. Fox
  8. Financial Regulations in Developing Countries: Can they Effectively Limit the Impact of Capital Account Volatility? By Liliana Rojas-Suarez
  9. Crime Prevention Through Environmental Design By Rick Draper; Emma Cadzow
  10. On the Coexistence of Banks and Markets By Hans Gersbach; Harald Uhlig
  11. Legal Damages at Uncertain Causation By Urs Schweizer

  1. By: Kolm, Ann-Sofie (Department of Economics, Copenhagen Business School); Larsen, Birthe (Department of Economics, Copenhagen Business School)
    Abstract: While examining the macroeconomic effects of government tax and punishment policies, this paper develops a three-sector general equilibrium model featuring matching frictions and worker-firm wage bargaining. Workers are assumed to differ in ability, and the choice of education is determined endogenously. Job opportunities in an informal sector are available only to workers who choose not to acquire higher education. We find that increased punishment of informal activities increases the number of educated workers and reduces the number of unemployed workers. Considering welfare, we show it is optimal to choose punishment rates so to more than fully counteract the distortion created by the government’s inability to tax the informal sector.
    Keywords: Tax evasion; underground economy; education; matching; unemployment.
    JEL: H26 I21 J64
    Date: 2006–11–12
  2. By: Bech, Mickael (Institute of Public Health, University of Southern Denmark); Christiansen, Terkel (Institute of Public Health, University of Southern Denmark); Dunham, Kelly (Center for Health Policy, Stanford University); Lauridsen, Jørgen (Department of Business and Economics, University of Southern Denmark); Lyttkens, Carl Hampus (Department of Economics, Lund University); McDonald, Kathryn (Center for Health Policy, Stanford University); McGuire, Alistair (LSE Health & Social Care, London School of Economics); TECH investigators, the (various)
    Abstract: The TECH research network collected patient-level data on three procedures for treatment of heart attack patients, (catheterization, coronary artery by-pass grafts and percutaneous transluminal coronary angioplasty), for seventeen countries over an eighteen year period to examine the impact of economic and institutional factors on technology adoption. Specific institutional factors are shown to be important to the up-take of these technologies. Health care systems characterized as public contract systems and reimbursement systems have higher adoption rates than public integrated health care systems. Central funding of investments was negatively associated with adoption rates. GDP per capita also has a strong role in initial adoption. The impact of income and institutional characteristics on the utilization rates of these procedures diminishes over time.
    Keywords: Diffusion of technologies; technological change; economic incentives; regulation
    JEL: I18 O33
    Date: 2006–02–14
  3. By: Gene M. Grossman; Edwin C.-L. Lai
    Abstract: Price controls create opportunities for international arbitrage. Many have argued that such arbitrage, if tolerated, will undermine intellectual property rights and dull the incentives for investment in research-intensive industries such as pharmaceuticals. We challenge this orthodox view and show, to the contrary, that the pace of innovation often is faster in a world with international exhaustion of intellectual property rights than in one with national exhaustion. The key to our conclusion is to recognize that governments will make different choices of price controls when parallel imports are allowed by their trade partners than they will when they are not.
    JEL: O34 F13
    Date: 2006–08
  4. By: Jens Ludwig; Jeffrey R. Kling
    Abstract: Understanding whether criminal behavior is “contagious” is important for law enforcement and for policies that affect how people are sorted across social settings. We test the hypothesis that criminal behavior is contagious by using data from the Moving to Opportunity (MTO) randomized housing-mobility experiment to examine the extent to which lower local-area crime rates decrease arrest rates among individuals. Our analysis exploits the fact that the effect of treatment group assignment yields different types of neighborhood changes across the five MTO demonstration sites. We use treatment-site interactions to instrument for measures of neighborhood crime rates, poverty and racial segregation in our analysis of individual arrest outcomes. We are unable to detect evidence in support of the contagion hypothesis. Neighborhood racial segregation appears to be the most important explanation for across-neighborhood variation in arrests for violent crimes in our sample, perhaps because drug market activity is more common in high-minority neighborhoods.
    JEL: H43
    Date: 2006–08
  5. By: Leemore Dafny; David Dranove
    Abstract: This paper investigates whether managers who fail to exploit regulatory loopholes are vulnerable to replacement. We use the U.S. hospital industry in 1985-1996 as a case study. A 1988 change in Medicare rules widened a pre-existing loophole in the Medicare payment system, presenting hospitals with an opportunity to increase operating margins by five or more percentage points simply by “upcoding” patients to more lucrative codes. We find that “room to upcode” is a statistically and economically significant predictor of whether a hospital replaces its management with a new team of for-profit managers. We also find that hospitals replacing their management subsequently upcode more than a sample of similar hospitals that did not, as identified by propensity scores.
    JEL: G3 H51 I11
    Date: 2006–08
  6. By: Benjamin A. Olken
    Abstract: This paper examines the accuracy of beliefs about corruption, using data from Indonesian villages. Specifically, I compare villagers’ stated beliefs about the likelihood of corruption in a road-building project in their village with a more objective measure of ‘missing expenditures’ in the project, which I construct by comparing the projects’ official expenditure reports with an independent estimate of the prices and quantities of inputs used in construction. I find that villagers’ beliefs do contain information about corruption in the road project, and that villagers are sophisticated enough to distinguish between corruption in the road project and other types of corruption in the village. The magnitude of their information, however, is small, in part because officials hide corruption where it is hardest for villagers to detect. This may limit the effectiveness of grass-roots monitoring of local officials. I also find evidence of systematic biases in corruption beliefs, particularly when examining the relationship between corruption and variables correlated with trust. For example, ethnically heterogeneous villages have higher perceived corruption levels but lower actual levels of missing expenditures. The findings illustrate the limitations of relying solely on corruption perceptions, whether in designing anti-corruption policies or in conducting empirical research on corruption.
    JEL: D73 D83
    Date: 2006–08
  7. By: Patrick Bajari (Duke University); Jeremy T. Fox (University of Chicago)
    Abstract: We empirically study bidding in the C Block of the US mobile phone spectrum auctions. Spectrum auctions are conducted using a simultaneous ascending auction design that allows bidders to assemble packages of licenses with geographic complementarities. While this auction design allows the market to find complementarities, the auction might also result in an inefficient equilibrium. In addition, these auctions have equilibria where implicit collusion is sustained through threats of bidding wars. We estimate a structural model in order to test for the presence of complementarities and implicit collusion. The estimation strategy is valid under a wide variety of alternative assumptions about equilibrium in these auctions and is robust to potentially important forms of unobserved heterogeneity. We make suggestions about the design of future spectrum auctions.
    Date: 2005–09
  8. By: Liliana Rojas-Suarez
    Abstract: This paper identifies two alternative forms of prudential regulation. The first set is formed by regulations that directly control financial aggregates, such as liquidity expansion and credit growth. An example is capital requirements as currently incorporated in internationally accepted standards; namely capital requirements with risk categories used in industrial countries. The second set, which can be identified as the “pricing-risk-right” approach, works by providing incentives to financial institutions to avoid excessive risk-taking activities. A key feature of this set of regulations is that they encourage financial institutions to internalize the costs associated with the particular risks of the environment where they operate. Regulations in this category include ex-ante risk-based provisioning rules and capital requirements that take into account the risk features particular to developing countries. This category also includes incentives for enhancing market discipline as a way to differentiate risk-taking behavior between financial institutions. The main finding of the paper is that the first set of regulations—the most commonly used in developing economies-- have had very limited usefulness in helping countries to contain the risks involved with more liberalized financial systems. The main reason for this disappointing result is that, by not taking into account the particular characteristics of financial markets in developing countries, these regulations cannot effectively control excessive risk taking by financial institutions. Moreover, the paper shows that, contrary to policy intentions, this set of prudential regulations can exacerbate rather than decrease financial sector fragility, especially in episodes of sudden reversal of capital flows. In contrast, the paper claims, the second set of prudential regulation can go a long way in helping developing countries achieving their goals. The paper advances suggestions for the sequencing of implementation of these regulations for different groups of countries.
    Keywords: regulation, liquidity, credit growth, pricing-risk-right, financial institutions, capital flows, developing countries
    JEL: O16 F30 F32 F33 F36 F43 H3 D81
  9. By: Rick Draper; Emma Cadzow
    Abstract: Applying CPTED (Crime Prevention Through Environmental Design) strategies to schools can significantly contribute to a safer learning environment by influencing the behaviour of students and visitors. CPTED has three overlapping primary concepts that are intended to reduce opportunities for crime as well as fear of crime: access control, surveillance and territorial reinforcement.
    Keywords: security
    Date: 2004–10
  10. By: Hans Gersbach; Harald Uhlig
    Abstract: We examine the coexistence of banks and financial markets, studying a credit market where the qualities of investment projects are not observable and the investment decisions of entrepreneurs are not contractible. Standard banks can alleviate moral-hazard problems by securing a portion of a repayment in the case of non-investment. Financial markets operated by investment banks and rating agencies have screening know-how and can alleviate adverse-selection problems. In competition, standard banks are forced to increase repayments, since financial markets can attract the highest-quality borrowers. This, in turn, increases the share of shirkers and may make lending unprofitable for standard banks. The coexistence of financial markets and standard banks is socially inefficient. The same inefficiency can happen with the entrance of sophisticated banks, operating with a combination of rating and ongoing monitoring technologies.
    Keywords: contract, debt contract, adverse selection, moral hazard, coexistence of financial intermediaries, regulation
    JEL: G24 G28 G32 G38 D80 D92 D43
    Date: 2006–03
  11. By: Urs Schweizer (Department of Economics, University of Bonn, Adenauerallee 24, 53113 Bonn, Germany.
    Abstract: The legal notion of damages requires to compare the actual value of the creditor’s assets with the hypothetical value that would have prevailed if the debtor had met his obligation. Moreover, values and causation may be uncertain. If nature’s contribution is modelled as a random move then the interaction between debtor and nature can be described in normal form which, in turn, allows to capture causality and legal damages in a consistent way. In practice, such random moves of nature are rarely observable. Yet, statistical inference may reveal sufficient information to test for causation and to estimate legal damages on average over observable events as the present paper will establish.
    Keywords: estimating legal damages, liability for torts, liability for breach of contracts
    JEL: K13 K12 D62
    Date: 2006–08

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