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on Regulation |
| By: | Efraim Benmelech; Tobias J. Moskowitz |
| Abstract: | We investigate the causes and consequences of financial regulation by studying the political economy of U.S. state usury laws in the 19th century. We find evidence that usury laws were binding and enforced and that lending activity was affected by rate ceilings. Exploiting the heterogeneity across states and time in regulation, enforcement, and market conditions, we find that regulation tightens when it is less costly and when it coexists with other economic and political restrictions that exclude certain groups. Furthermore, the same determinants of financial regulation that favor one group (and restrict others) are associated with higher (lower) future economic growth rates. The evidence suggests regulation is the outcome of private interests using the coercive power of the state to extract rents from other groups, highlighting the endogeneity of financial development and growth. |
| JEL: | G2 G38 N2 O16 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12851&r=reg |
| By: | Lei Fang; Richard Rogerson |
| Abstract: | Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark aggregate model of time allocation. We find that product market regulations affect time devoted to market work in effectively the same fashion as do taxes on labor income or consumption. In particular, if product market regulations are to affect aggregate market work in this model the key driving force is the size of income transfers associated with the regulation relative to labor income, and the key propagation mechanism is the labor supply elasticity. We show in a two sector model that industry level analysis is of little help in assessing the aggregate effects of product market regulation. |
| JEL: | E2 J2 L5 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12891&r=reg |
| By: | David, DE LA CROIX (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Clara, DELAVALLADE |
| Abstract: | Corruption is thought to prevent poor countries from catching-up. We analyze one channel through which corruption hampers growth : public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose an optimal growth model where households vote for the composition of public spending subject to an incentive constraint reflecting individualsÕ choice between productive activity and rent-seeking. At equilibrium, the intensity of corruption and the structure of public investment are determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption yet still the possibility of corruption distorts the allocation of public investment, thus hampering growth. We test the implications of the model on a panel of countries estimating a system of equations which instrumental variables. We find that countries with a high predatory technology invest more in housing and physical capital in comparison with health and education. For equal initial conditions, such countries grow slower and have higher corruption, in particular when political power is concentrated |
| Keywords: | Public investment, Optimal growth, Corruption, Political power |
| JEL: | H50 D73 |
| Date: | 2006–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2006056&r=reg |
| By: | Carmine Guerriero (University of Cambridge) |
| Abstract: | This paper analyzes the constitutional determinants of cost reimbursement rules. In order to design the optimal incentive schemes, a possibly partisan planner will take into account the market cost structure, the institutional design of the supervision hierarchical structure and its technology. I employ electricity data from the U.S. electric power market to test the model’s predictions. The evidence shows that reforms from low powered incentive scheme (COS) to high powered one (PBR) are linked to high cost industries, the presence of elected supervisors, high inter-party platform distance and large (slim) majority when the reformer is Republican (Democratic). Moreover, there is some evidence in the data that performance-based regulation lowers regulated prices. |
| Keywords: | Industrial Policy, Political Economy, Regulation and Incentives |
| JEL: | L51 D72 D82 H11 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.106&r=reg |
| By: | Philip Bond; Itay Goldstein; Edward S. Prescott |
| Abstract: | Various laws and policy proposals call for regulators to make use of the information reflected in market prices. We focus on a leading example of such a proposal, namely that bank supervision should make use of the market prices of traded bank securities. We study the theoretical underpinnings of this proposal in light of a key problem: if the regulator uses market prices, prices adjust to reflect this use and potentially become less revealing. We show that the feasibility of this proposal depends critically on the information gap between the market and the regulator. Thus, there is a strong complementarity between market information and the regulator's information, which suggests that regulators should not abandon other sources of information when learning from market prices. We demonstrate that the type of security being traded matters for the observed equilibrium outcome and discuss other policy measures that can increase the ability of regulators to make use of market information. |
| Keywords: | Markets ; Prices ; Banks and banking |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:06-12&r=reg |