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on Regulation |
| By: | Dennis W. Carlton; Randal C. Picker |
| Abstract: | Since the passage of the Interstate Commerce Act (1897) and the Sherman Act (1890), regulation and antitrust have operated as competing mechanisms to control competition. Regulation produced cross-subsidies and favors to special interests, but specified prices and rules of mandatory dealing. Antitrust promoted competition without favoring special interests, but couldn't formulate rules for particular industries. The deregulation movement reflected the relative competencies of antitrust and regulation. Antitrust and regulation can also be viewed as complements in which regulation and antitrust assign control of competition to courts and regulatory agencies based on their relative strengths. Antitrust also can act as a constraint on what regulators can do. This paper uses the game-theoretic framework of political bargaining and the historical record of antitrust and regulation to establish and illustrate these points. |
| JEL: | K2 K21 K23 L4 L43 L44 L5 L51 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12902&r=reg |
| By: | Stennek, Johan; Tangerås, Thomas P. |
| Abstract: | This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome prevails independently of market concentration when access prices are determined in bilateral negotiations. A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability. |
| Keywords: | access price competition; entry; network competition; network substitutability; regulation; two-way access |
| JEL: | L51 L96 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6073&r=reg |
| By: | Neil Rankin (University of the Witwatersrand, South Africa) |
| Abstract: | Abstract: The paper specifically examines: labour regulations and their relationship with employment and investment; trade regulations; permits and licences for businesses; visa regulations; the predictability of regulatory application; and the costs of regulation. It also investigates the ways firms respond to regulations. There is evidence that these regulations constrain firm growth, particularly among smaller firms. Labour regulations are not the only type of regulations that have a disproportional effect on smaller firms. Government regulation comes in many forms, such as tax regulation, labour regulation and regulations concerning the import and export of goods. This paper uses data gathered from a number of South African firm-level surveys to investigate how government regulations impact on firms. In many cases firms are asked about the perceived impact of regulations. This places regulation in context. |
| Keywords: | Labour Regulations, employment and investment |
| JEL: | A1 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:ctw:wpaper:9605&r=reg |
| By: | Bruno, Valentina; Claessens, Stijn |
| Abstract: | For a large number of companies from different countries, we analyze how company corporate governance practices and country regulatory regimes interact in terms of company valuation. We confirm that corporate governance plays a crucial role in efficient company monitoring and shareholder protection, and consequently positively impacts valuation. We find substitution in valuation impact between corporate governance measures at the company and country level, with a possibility of over-regulation. Corporate governance appears also more valuable for companies that rely heavily on external financing, consistent with the hypothesis that corporate governance main role is to protect external financiers. |
| Keywords: | company valuation; corporate governance practices; regulatory regimes |
| JEL: | G34 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6108&r=reg |
| By: | Chakraborty, Suparna; Allen, Linda |
| Abstract: | The 1998 passage of the Land Revaluation Law in Japan provided regulatory forbearance to Japanese banks in the form of a regulatory capital infusion. We test whether this divergence from international bank capital requirements had an impact on Japanese bank lending behavior. Because this natural experiment created an exogenous supply shock, we can utilize it to disentangle demand and supply effects in order to determine the impact on Japanese bank lending in both the U.S. and Japan. We find that the infusion of regulatory capital had no aggregate impact on Japanese bank lending in Japan, but it did change the allocation of loans. Well-capitalized Japanese banks shifted their lending from low margin, less capital intensive mortgage lending toward higher yielding, more capital intensive commercial loans. Moreover, we find evidence consistent with a shifting of Japanese bank lending activity away from U.S. lending(which is predominately real estate based) to domestic lending to fund manufacturing. Thus, we find that divergences from international capital standards have significant allocative effects on lending, as well as on bank profitability. |
| Keywords: | Basel; international lending; capital adequacy; allocative effects; aggregate effects |
| JEL: | G21 F34 |
| Date: | 2007–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1805&r=reg |
| By: | Adriaan Perrels |
| Abstract: | This report discusses the economic implications of the regulatory organisation of the European Emission Trade System (EU ETS) in the member states, and more in particular the consequences of differences between national regulations. It is part of a larger study regarding juridical aspects of the implementation of EU-ETS (Upston-Hooper et al, 2006), which has been carried out in the framework of the CLIMBUS programme funded by TEKES. |
| Keywords: | Emission trading, level playing field, regulation |
| Date: | 2007–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:fer:dpaper:412&r=reg |
| By: | Caselli, Francesco; Gennaioli, Nicola |
| Abstract: | We compare the economic consequences and political feasibility of reforms aimed at reducing barriers to entry (deregulation) and improving contractual enforcement (legal reform). Deregulation fosters entry, thereby increasing the number of firms (entrepreneurship) and the average quality of management (meritocracy). Legal reform also reduces financial constraints on entry, but in addition it facilitates transfers of control of incumbent firms, from untalented to talented managers. Since when incumbent firms are better run entry by new firms is less profitable, in general equilibrium legal reform may improve meritocracy at the expense of entrepreneurship. As a result, legal reform encounters less political opposition than deregulation, as it preserves incumbents' rents, while at the same time allowing the less efficient among them to transfer control and capture (part of) the resulting efficiency gains. Using this insight, we show that there may be dynamic complementarities in the reform path, whereby reformers can skillfully use legal reform in the short run to create a constituency supporting future deregulations. Generally speaking, our model suggests that 'Coasian' reforms improving the scope of private contracting are likely to mobilize greater political support because - rather than undermining the rents of incumbents - they allow for an endogenous compensation of losers. Some preliminary empirical evidence supports the view that the market for control of incumbent firms plays an important role in an industry’s response to legal reform. |
| Keywords: | deregulation; entry; legal reform |
| JEL: | G34 O11 O16 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6095&r=reg |
| By: | Clara Delavallade (Centre d'Economie de la Sorbonne) |
| Abstract: | This paper empirically analyzes the main microeconomic determinants of different forms of corruption supply. Our study is based on a new database of near 600 Algerian, Moroccan and Tunisian firms. We show that the undeclared part of firms' sales is a major factor of their involvement in administrative corruption. The latter increases with the part of the firm's informal activity as far as it is inferior to 55% of total sales, before slightly decreasing. State capture is rather strengthened by a failing enforcement of property and contract rights. Moreover, both forms of corruption help to compensate a loss of competitiveness, which contradicts previous results on this issue. Finally, we draw a comparison of the factors of corruption in North Africa, Uganda and transition countries and derive policy recommendations. |
| Keywords: | Supply of corruption, administrative corruption, state capture, informal activity, competitiveness, North Africa. |
| JEL: | C2 D73 O17 H32 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:v07002&r=reg |
| By: | Annette Bongardt (Universidade Moderna); Francisco Torres (IEE, Universidade Católica Portuguesa) |
| Abstract: | In order to ensure that the internal market delivers (growth, jobs) in the face of a changing market and technological environment (internal market liberalisation, globalisation, the knowledge-based economy) and to take advantage of the opportunities that it presents, the European Union (EU) needs to create an adequate institutional framework that promotes its efficiency potential and adaptive capacity. In the reality of European mixed economies, its capacity to solve the structural problems that impair productivity and economic growth in Europe hinges very much on governance, in particular when reforms to realise international synergies and complementarities or policy-learning with a view to common goals involve not only the EU but as well the Member State level. The Lisbon Agenda can be considered an exercise of policy coordination that needs to ensure that Member States’ over-regulated economies comply both with liberalisation in the Single Market and with an adequate European-wide institutional environment for sustainable growth without coordination mismatches, protectionism and market segmentation. This ultimately raises the question, central to this paper, of the adequate governance level and of the regulatory model to adopt (systems competition and/or European regulation). |
| Keywords: | Economic Integration; Governance; European Union; Single Market; Lisbon Agenda; Open method of coordination; Liberalisation; Regulatory model; Growth and competitiveness. |
| JEL: | F15 P48 F50 H73 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:ave:wpaper:452007&r=reg |
| By: | Pailhé, Cristina; Delfiner, Miguel; Mangialavori, Ana |
| Abstract: | The Basel Committee on Banking Supervision (BCBS) has defined operational risk (OR) as the risk of loss resulting from inadequate or failed internal processes, people and systems from external events. This definition includes legal risk, but excludes strategic and reputational risk. Traditionally, individual OR management has been an important part of financial institutions’ efforts to avoid frauds and to keep the integrity of internal controls, among other aspects. Nevertheless, what is quite new is the fact of considering OR management as a comprehensive practice similar to the management of other risks (such as credit or market risk), and the measurement of losses due to OR events and the requirement of regulatory capital. Considering OR as an inclusive risk category, the BCBS has outlined a set of sound practices for the management and supervision of this risk. This document analyses those sound practices and their application in internationally active banks. A sample of Latin American countries which have published regulations on sound practices about this matter, is analyzed. It has to be emphasized that many countries in the region have established regulations in order to promote the adoption of OR management structures based on BCBS principles. |
| Keywords: | Operational risk; Basel Committee; sound practices |
| JEL: | G21 G28 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1803&r=reg |
| By: | David Card |
| URL: | http://d.repec.org/n?u=RePEc:pri:indrel:190&r=reg |
| By: | SBP (Strategic Business Partnerships for Growth in Africa) |
| Abstract: | Abstract: The paper aims to identify the impacts of sector-specific policies and regulations on the growth of – and job creation by – SMEs in eight sectors of the South African economy. Where appropriate and, where possible, impacts are quantified. The aim is also to develop suggestions for policy changes and regulatory reforms which would reduce the regulatory cost burden on these SMEs and permit them to grow and take on workers more readily. The paper contains descriptions of sector-specific policies and regulations in the eight selected sectors, qualitative assessment of the impacts of sector-specific policies and regulations on SMEs in the the selected sectors, quantitative assessment of these impacts and suggestions are made for policy changes and reforms to the sector-specific regulatory environments of the selected sectors. The eight sectors are agri-processing, the automotive industry, clothing and textiles, financial services, information and communications technology (ICT), mining, pharmaceuticals and tourism. |
| Keywords: | Sector-Specific Policies and Regulations, SMEs |
| JEL: | A1 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:ctw:wpaper:9606&r=reg |
| By: | Vasconcelos, Helder |
| Abstract: | This paper studies the role of structural remedies in merger control in a Cournot setting where (endogenous) mergers are motivated by prospective efficiency gains and must be submitted to an Antitrust Authority (AA) which might require partial divestiture for approval. Both positive and negative effects of merger remedies are identified. First, structural remedies create new merger opportunities to firms. Second, when divestitures are required, the AA over-fixes, i.e., goes beyond the recreation of the level of competition that existed prior to the transaction. Finally, by insisting in over-fixing, the AA may discourage firms to look for more efficient mergers, inducing a final outcome where consumers' surplus is lower than if divestitures couldn't be required. Overall, however, structural remedies are shown to be good: consumers' surplus ex-ante is higher with than without remedies. |
| Keywords: | efficiency gains; endogenous mergers; failing firm defence.; merger remedies |
| JEL: | D43 L13 L41 L51 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6093&r=reg |
| By: | Luis J. Álvarez (Banco de España); Ignacio Hernando (Banco de España) |
| Abstract: | This paper explores the role of a number of factors in explaining the heterogeneity in the degree of price stickiness across industries, on the basis of the information provided by surveys on pricing behavior conducted in nine euro area countries. The main focus is placed on the influence of competition on the degree of price flexibility. Our results suggest that the price setting strategies of the most competitive firms give them a greater capacity to react to shocks and make, in practice, for greater flexibility in their prices. The direct influence of market competition on price flexibility is corroborated by a cross-country cross-industry econometric analysis based on the information provided by surveys. This analysis also shows that the cost structure and demand conditions help to explain the degree of price flexibility. Finally, it suggests that countries in which product market regulation is more relevant are characterized by less price flexibility. |
| Keywords: | price setting, competition, survey data |
| JEL: | D40 E31 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0629&r=reg |
| By: | Iquiapaza, Robert; Amaral, Hudson |
| Abstract: | The corruption is a phenomenon present in different degrees in all countries around the world. In this revision article the objective was to identify the theoretical explanations of corruption and their consequences on the economic development. First, it is verified the difficulty of measurement given its illegal and secret nature. The causes can be multiple, but the literature reveals the inexistence of a solid theoretical approach. However, behavioral models and the principal-agent relationship approaches stand out in economics and political science. There is no doubt in associating the corruption to the lower economic development, that results as a consequence of the introduction of inefficiencies on investments fall in the potential product and increases the interest rate. These characteristics seem to coincide with the reality observed during the actual millennium in the Brazilian economy; without misunderstanding it results in a pernicious combination and generating of social inequalities. |
| Keywords: | Keywords: Economic development; corruption; Economic; Brazil. |
| JEL: | D73 O1 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1818&r=reg |
| By: | Leliefeld, Daniel (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Motchenkova, Evgenia |
| Abstract: | This paper studies the application of leniency programs. An analysis of the structure and design of leniency programs and existing literature raises a new question: Are leniency programs effective, in the sense that they deter cartels from formation, in asymmetrical markets? A game theoretical model, which allows for asymmetry and predatory pricing, is used to provide an answer. A leniency program does not always lead to a breach of trust. We find that, in certain industries, leniency programs are unable to break collusion. They may have the adverse effect in the sense that they strengthen cartel stability or may even lead to abuse of market power. A relatively large firm can use coercion to remove the option to a smaller firm to self-report to the authorities, thus removing the risk of prosecution posed by the program. In industries characterized by a certain degree of asymmetry in market shares and high sunk costs this is an even more likely scenario. In view of this limitation, a number of policy implications are provided in the paper. Policies aimed at the removal of the threat of retaliation need to be considered in order to convict and deter these kinds of cartels. |
| Keywords: | Antitrust policy; Antitrust Law; Self-reporting; Leniency programs |
| JEL: | K21 L41 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:vuarem:2007-2&r=reg |
| By: | Orley Ashenfelter; Robert Smith |
| URL: | http://d.repec.org/n?u=RePEc:pri:indrel:98&r=reg |
| By: | Bruno Deffains; Yannick Gabuthy; Eve-Angéline Lambert |
| Abstract: | This paper presents a model of litigation in the context of a labor contract. The main objective of our analysis is to determine whether and under which conditions it is efficient that the judiciary arbiters a labor conflict and how the judge's decision should be made in order to be optimal. We embed this idea by considering a relationship between an employer and his worker, in which they can make (non contractible) relationship-specific investments. The optimality here refers to the best investment incentives of the parties allowing to maximize the generated surplus. We derive conclusions about the judge's behavior giving right investment incentives and determine how the division of the surplus should vary depending on several economic and social parameters. |
| Keywords: | Labor Law, Litigation, Investment Incentives, Bargaining. |
| JEL: | C78 K31 K41 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2007-04&r=reg |
| By: | Korkeamäki, Timo (Gonzaja University, Boston University School of Management and Bank of Finland.); Koskinen, Yrjö (Boston University School of Management and CEPR); Takalo, Tuomas (Bank of Finland Research) |
| Abstract: | Finland experienced an extremely severe economic depression in the early 1990s. In the midst of this crisis, significant new legislation was passed that increased supervisory powers of financial market regulators and reformed bankruptcy procedures, significantly decreasing the protection of creditors. We show that the introduction of these new laws resulted in positive abnormal stock returns. The new laws also lead to increases in firms’ Tobin’s q, especially for more levered firms. In contrast to previous studies, our results also suggest that public supervision of financial markets fosters rather than hampers financial market development. |
| Keywords: | corporate governance; bankruptcy; financial supervision; shareholder protection; creditors’ rights; corpo-rate valuations; political economy |
| JEL: | G34 K22 |
| Date: | 2007–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2007_001&r=reg |
| By: | Yuji Tamura |
| Abstract: | We analyze the migrant smuggling market where smugglers differ in their capacities to exploit their clients' labor in the destination. We show that when exploitation capacities are private information, the equilibrium may be characterized by adverse selection. In such a case, policies that diminish the availability of smuggling services to potential migrants inevitably raise the mean exploitation of smuggled labor. |
| Keywords: | migrant smuggling, migrant exploitation |
| Date: | 2007–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp207&r=reg |