nep-reg New Economics Papers
on Regulation
Issue of 2006‒11‒18
nineteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais, Canada

  1. IPR Protection in the High-Tech Industries: A Model of Piracy By Thierry Rayna
  2. Airport Noise Regulation, Airline Service Quality, and Social Welfare By Jan K. Brueckner; Raquel Girvin
  3. Alcohol Taxation and Regulation in the European Union By Sijbren Cnossen
  4. Should Courts always Enforce what Contracting Parties Write? By Luca Anderlini; Leonardo Felli; Andrew Postlewaite
  5. Energy Regulation, Roll Call Votes and Regional Resources: Evidence from Russia By Theocharis N. Grigoriadis; Benno Torgler
  6. What Discount Rate Should Bankruptcy Judges Use? Estimates from Canadian Reorganization Data By Fabrice Barthélémy; Timothy C.G. Fisher; Jocelyn Martel
  7. Rethinking Private Regulation in the European Regulatory Space By Fabrizio Cafaggi
  8. The Regulation of Food Advertising and Obesity Prevention in Europe: What Role for the European Union By Armandine Garde
  9. Genetic Resources, Biotechnology and Human Rights: The International Legal Framework By Francesco Francioni
  10. Validity As Bindingness: The Normativity of Legality By Giovanni Sartor
  11. External Relations of the EU and the Member States: Competence, Mixed Agreements, International Responsibility, and Effects of International Law By Marise Cremona
  12. Interplay between Environmental Regulation and Power Markets By Klaus Skytte
  13. European Pharmaceutical Price Regulation, Firm Profitability, and R&D Spending By Joseph H. Golec; John A. Vernon
  14. Does Deregulation Change Economic Behavior of Firms? By Subal Kumbhakar; Efthymios Tsionas
  15. Regulation and Evolution of Compliance in Common Pool Resources By Anastasios Xepapadeas
  16. The Regulatory Choice of Noncompliance in Emissions Trading Programs By John K. Stranlund
  17. Public Sector Corruption and Natural Disasters: A Potentially Deadly Interaction By Monica Escaleras; Nejat Anbarci; Charles Register
  18. Efficiency and environmental regulation: a "complex situation" By Andrés J. Picazo-Tadeo; Diego Prior
  19. Financial Development, Labor and Market Regulations and Growth By Raquel Fonseca; Natalia Utrero-González

  1. By: Thierry Rayna
    Abstract: This article investigates the relation between the level of publicness of digital goods – i.e. their degree of non-excludability and non-rivalness – and the pirating behaviour of the consumers. The main focus is put on the difference between the ex-ante level of publicness – determined by the anti-piracy strategies of the firms – and the ex-post level of publicness – which is a consequence of external factors such as the consumers network structure, the consumers sharing behaviour, etc. The two models developed in the article detail the required conditions for anti-piracy strategies to be successful and show the influence of the economic environment on these conditions.
    Keywords: Digital goods, Piracy, Public goods, Free-riding, Intellectual Property Rights
    JEL: D11 C72 L82 L86 O34
    Date: 2006–11
  2. By: Jan K. Brueckner; Raquel Girvin
    Abstract: This paper explores the impact of airport noise regulation on airline service quality and airfares. It also characterizes the socially optimal stringency of noise limits, taking both noise damage and the various costs borne by airlines and their passengers into account. The analysis also investigates the effect of noise taxes, as well as the optimal level of such taxes. Along with the companion paper by Girvin (2006a), this work represents the first complete theoretical investigation into the economics of airport noise regulation using a model where the interests of the key relevant stakeholders are captured.
    Keywords: airport, airport noise, airport noise regulation, airline, airline service quality, noise taxes, transportation
    JEL: L00 L90 Q20
    Date: 2006
  3. By: Sijbren Cnossen
    Abstract: This paper estimates the external costs of harmful alcohol use in the European Union (EU) and confronts them with the alcohol excise duty collections per adult and per litre of pure alcohol in the various Member States. In all but one Member State, drinkers do not appear to pay their way. This reflects the EU’s acquiescence in a formidable alcohol problem. Fifteen per cent of adults ‘drink too much’, while the extent of youth drinking has reached alarming proportions. The external costs should be internalised in price through an appropriate optimal alcohol excise duty, supplemented by regulatory measures aimed at specific problem groups. Further, a coordinated alcohol tax policy seems called for, which would, among others, raise the minimum duties on wine, beer and spirits, preferably in line with their relative alcohol content. A drawback of these measures is that they would reduce the welfare of moderate drinkers.
    Keywords: alcohol taxation, European Union, external costs, social costs
    JEL: H20 H80
    Date: 2006
  4. By: Luca Anderlini; Leonardo Felli; Andrew Postlewaite
    Abstract: We find an economic rationale for the common sense answer to the question in our title — courts should not always enforce what the contracting parties write. We describe and analyze a contractual environment that allows a role for an active court. An active court can improve on the outcome that the parties would achieve without it. The institutional role of the court is to maximize the parties’ welfare under a veil of ignorance. We study a buyer-seller multiple-widget model with risk-neutral agents, asymmetric information and ex-ante investments. The court must decide when to uphold a contract and when to void it. The parties know their private information at the time of contracting, and this drives a wedge between ex-ante and interim-efficient contracts. In particular, if the court enforces all contracts, pooling obtains in equilibrium. By voiding some contracts the court is able to induce them to separate, and hence improve ex-ante welfare. In some cases, an ambiguous court that voids and upholds both with positive probability may be able to increase welfare even further.
    Keywords: optimal courts, informational externalities, ex-ante welfare
    JEL: C79 D74 D89 K40 L14
    Date: 2006
  5. By: Theocharis N. Grigoriadis; Benno Torgler
    Abstract: This paper investigates the relative impact of regional energy production on the legislative choices of Russian Duma deputies on energy regulation between 1994 and 2003. We apply Poole’s optimal classification method of roll call votes using an ordered probit model to explain energy law reform in the first decade of Russia’s democratic transition. Our goal is to analyze the relative importance of home energy on deputies’ behavior, controlling for other factors such as party affiliation, electoral mandate, committee membership and socio-demographic parameters. We observe that energy resource factors have a considerable effect on deputies’ voting behavior. On the other hand, we concurrently find that regional economic preferences are constrained by the public policy priorities of the federal center that continue to set the tone in energy law reform in post-Soviet Russia.
    Keywords: energy regulation; energy roll law reform; energy resources; roll call votes; legislative politics; State Duma; Russia
    JEL: Q40 D72 K23 P27 P37 P31 R11
    Date: 2006–10
  6. By: Fabrice Barthélémy (Université de Cergy-Pontoise (Théma)); Timothy C.G. Fisher (Wilfrid Laurier University and University of Sydney); Jocelyn Martel (Université de Cergy-Pontoise (Théma) and ESSEC Business School)
    Abstract: Using data from financial reorganization plans filed by insolvent Canadian firms, we estimate the discount rate implicit in the unsecured creditors' reorganization decision. Using (HARA) utility functions, we find the implicit monthly discount rate of creditors to be 4.9%, which corresponds to an annual discount rate of 77%. This is 7 to 10 times higher than discount rates used in previous empirical studies of reorganization. The discount rate estimates are robust to varying degrees of risk aversion and market to book value ratio of assets
    Date: 2006
  7. By: Fabrizio Cafaggi
    Abstract: The European regulatory space is changing. The role of private regulation is increasing more as a complement of public regulation than as an alternative to it. The emergence of new regulatory models coordinating public and private regulators has characterized the last decade. They reflect the crisis of the regulatory state but at the same time pose serious questions to the legitimacy and accountability of private regulators. The paper distinguishes five different models: public regulation, co-regulation, delegated private regulation, ex post recognized private regulation and private regulation. Within these models it concentrates on the differences between pure private regulation and modes through which public and private actors coordinate to perform regulatory activity. The paper addresses the questions posed by these changes in terms of rule-making and monitoring. It focuses particularly on three dimensions: the alternative between monopolistic private regulators and plurality of regulators, the conflict of interest and the liability regimes. It underlines on the one hand the opportunity for new rules and on the other hand the necessity to distinguish between private regulators operating in coordination with public institutions and those whose regulatory power is embedded in freedom of contract. These two typologies present different issues. Different modes of control should be used to correlate the new powers with new liabilities. The legitimacy of private regulators and their contribution to a democratic regulatory regime will depend on the ability of legislators and private parties to device adequate European and transnational rules and institutions. This is the main challenge ahead.
    Keywords: regulation; regulatory competition; judicial review
    Date: 2006–05–01
  8. By: Armandine Garde
    Abstract: Since 1998, the World Health Organisation has recognised obesity as a problem of epidemic proportions. As none of the EU Member States is spared, the European Commission has recently published a Green Paper aimed at gathering evidence on how it could develop an obesity prevention strategy at European level. It is therefore the right moment to reflect on the principles which should guide EU policy in this field. This paper concentrates on one particular aspect of obesity prevention, namely the role that the European Union can play to curb the epidemic by regulating how food is marketed to consumers. That is not to say that the regulation of food advertising will, on its own, solve this public health issue. Obesity being by definition a multifactorial disease, the concerted action of all stakeholders is crucial to the successful outcome of the strategy which the Commission will choose to adopt
    Keywords: law; European law; competences; harmonisation
    Date: 2006–05–01
  9. By: Francesco Francioni
    Abstract: ""
    Date: 2006–06–01
  10. By: Giovanni Sartor
    Abstract: I shall argue that the concept of (valid) law is a purely normative notion, irreducible to any factual description. This uncontroversial notion, which is shared by all approaching the law from the internal point of view, needs to be distinguished from the competing theories on the grounds of legal bindingness, namely, on the reasons for qualifying a norm as legally valid. I shall consider some implications of this distinction for legal reasoning and for the role of the jurist.
    Keywords: law
    Date: 2006–07–01
  11. By: Marise Cremona
    Abstract: The following Report will be presented to the 22nd FIDE Congress to be held in Limassol, Cyprus, 1-4 November 2006. It has been prepared in response to a questionnaire devised by the General Rapporteur, Professor Piet Eeckhout, which is reproduced as an Annex. It seeks to do two things: first, to respond to the questions and issues raised by the General Rapporteur, and second to comment on some issues and recent developments which are particularly relevant to the relationship between the European Union and its Member States in the external relations field. These include the obligation on Member States when exercising their own external competence to comply with their Community law obligations, including procedural obligations; issues relating to choice of legal base for external action, and in particular the impact of the pillar structure when characterising EU external action; international responsibility under mixed agreements; and the relationship between international law and EU law.
    Keywords: competences; dispute resolution; European law; international agreements; judicial review; non-contractual liability; CFSP/ESDP; international relations; security/external; law
    Date: 2006–09–01
  12. By: Klaus Skytte
    Abstract: This paper discusses the difficulty of having three different objectives for the electricity supply sectors in the EU: renewable energy goals, emission reduction goals and minimising consumer prices. In the environment associated with the power markets, the regulatory mechanisms interact with each other and thus the attainment of the specified goals. Analytical discussions in the paper show that synergies do exist between the different regulation mechanisms and the targets. However, the challenge of having the different targets lies in the fact that the mechanisms at present cover different geographical areas and sectors, and that the targets are set differently within each Member State.This is an analytical paper, and its aim is to shed some light on the complexity of this regulation area and inspire more researchers to work in it.
    Keywords: regulation; electricity; environmental policy
    Date: 2006–02–17
  13. By: Joseph H. Golec; John A. Vernon
    Abstract: EU countries closely regulate pharmaceutical prices whereas the U.S. does not. This paper shows how price constraints affect the profitability, stock returns, and R&D spending of EU and U.S. firms. Compared to EU firms, U.S. firms are more profitable, earn higher stock returns, and spend more on research and development (R&D). Some differences have increased over time. In 1986, EU pharmaceutical R&D exceeded U.S. R&D by about 24 percent, but by 2004, EU R&D trailed U.S. R&D by about 15 percent. During these 19 years, U.S. R&D spending grew at a real annual compound rate of 8.8 percent, while EU R&D spending grew at a real 5.4 percent rate. Results show that EU consumers enjoyed much lower pharmaceutical price inflation, however, at a cost of 46 fewer new medicines introduced by EU firms and 1680 fewer EU research jobs.
    JEL: I11 I18 K2 O34
    Date: 2006–11
  14. By: Subal Kumbhakar (Department of Economics, State University of New York, USA); Efthymios Tsionas (Department of Economics, Athens University of Economics and Business, Greece)
    Abstract: Cost minimization and profit maximization behavioral assumptions are most widely used in microeconomic theory to analyze firm behavior. However, in practice researchers do not know whether every firm in the sample maximizes profit or minimizes cost. In this paper we address this problem via a latent class modeling approach in which we first consider the cost minimization problem (first class) and then the profit maximization problem (second class). The two problems are then mixed and the probabilities of class membership are made functions of covariates. This approach does not require researchers to know which firms maximize profit and which ones minimize cost. On the contrary, it helps us to determine not only which firms behave like profit maximizers but also why and what differentiates them from firms that failed to maximize profit. The new technique is illustrated using a panel data for the US airlines. The empirical findings suggest that very few airlines maximize profit consistently (if at all) and that deregulation had a positive impact on the chances of behaving like profit maximizers, although very few airlines continue to maximize profit even after the deregulation.
    JEL: N
  15. By: Anastasios Xepapadeas (Department of Economics, University of Crete, Greece)
    Abstract: The paper jointly models the evolution of compliance with regulation and the evolution of a CPR stock, by combining replicator dynamics describing compliance with harvesting rules, with resource stock dynamics. This evolutionary approach suggests that coexistence, in long run equilibrium, of both cooperative and non-cooperative rules under regulation is possible. Stock effects on profits and a certain structure of auditing probabilities could imply the emergence of a limit cycle in areas of low stock levels, as an equilibrium outcome for compliance and the biomass stock. It might be easier for the regulator to obtain full compliance under precommitment to fixed auditing probabilities.
    Keywords: Common pool resources (CPR), harvesting, regulation, replicator dynamics, compliance
    JEL: Q20 Q22 C61
  16. By: John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst)
    Abstract: This paper addresses the following question: To achieve a fixed aggregate emissions target cost-effectively, should emissions trading programs be designed and implemented to achieve full compliance, or does allowing a certain amount of noncompliance reduce the costs of reaching the emissions target? The total costs of achieving the target consist of aggregate abatement costs, monitoring costs, and the expected costs of collecting penalties from noncompliant firms. Under common assumptions, I show that allowing noncompliance is cost-effective only if violations are enforced with an increasing marginal penalty. However, one can design a policy that induces full compliance with a constant marginal penalty that meets the aggregate emissions target at lower expected costs. This last result does not depend on setting an arbitrarily high constant marginal penalty. In fact, the marginal penalty need not be higher than the equilibrium marginal penalty under the policy with the increasing marginal penalty,and can actually be lower. Finally, tying the marginal penalty directly to the permit price allows the policy objective to be achieved without any knowledge of firms’ abatement costs.
    Keywords: Compliance, Enforcement, Emissions Trading, Monitoring, Transferable Permits
    JEL: L51 Q28
    Date: 2006–10
  17. By: Monica Escaleras (Department of Economics, Florida Atlantic University); Nejat Anbarci (Department of Economics, Florida International University); Charles Register (Department of Economics, Florida Atlantic University)
    Abstract: A number of recent studies have, separately, addressed the effects of public sector corruption and natural disasters. In this paper, we intersect these lines of research to assess whether corruption in the public sector plays a role in the havoc wrought by large scale natural disasters, using major earthquakes as the example. We first develop a brief theoretical model of the relation between these two variables and then empirically test the proposition by analyzing 344 major quakes occurring in 42 countries during the 1975 through 2003 period. We use a Negative Binomial estimation strategy that takes into account the endogenous nature of corruption and controls for a number of other factors such as earthquake frequency, magnitude, distance from population centers, and a country’s level of development which have been shown to influence a quake’s destructiveness. The results provide strong evidence that public sector corruption is both positively and significantly related to the death toll a given earthquake takes on a population.
    Keywords: Earthquake fatalities, corruption, institutional variables
    JEL: D31 H41 P16
    Date: 2006–04
  18. By: Andrés J. Picazo-Tadeo (Departamento de Economía Aplicada II, Universitat de Valencia); Diego Prior (Department of Business Economics, Universitat Autonoma de Barcelona)
    Abstract: Production of desirable outputs is often accompanied by undesirable by-products that have damaging effects on the environment, and whose disposal is frequently regulated by public authorities. In this paper, we compute directional technology distance functions under particular assumptions concerning disposability of bads in order to test for the existence of what we call ‘complex situations’, where the biggest producer is not the greatest polluter. Furthermore, we show that how in such situations, environmental regulation could achieve an effective reduction in the aggregate level of bad outputs without reducing the production of good outputs. Finally, we illustrate our methodology with an empirical application to a sample of Spanish tile ceramic producers.
    Keywords: environmental regulation, efficiency, disposability of bads
    JEL: C61 D21 L68
    Date: 2005–04
  19. By: Raquel Fonseca; Natalia Utrero-González (Department of Business Economics, Universitat Autonoma de Barcelona)
    Abstract: This paper investigates the importance that market regulation and financial imperfections have on firm growth. We analyse institutions affecting labor market as Employment Protection Laws (EP) and Product Market Regulation (PM). We show that together with the beneficial effects of financial development, a firm will get less financing, and thus investless, in a weak financial market (finance effect), the strictness of product and labor market regulations also affect firm growth (labor effect). In particular, we show that the stricter the rules the more detrimental the influence on growth in sectoral value added for a large number of coun-tries. We also show that the labor effect overcomes the positive finance effect.
    Keywords: Financial development, labor and product market institutions, growth
    JEL: G2 G32 J32 L10
    Date: 2005–05

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