nep-reg New Economics Papers
on Regulation
Issue of 2007‒03‒03
23 papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Outsourcing By Australian Prudential Regulation Authority
  2. Implementation of the Basel II Capital Framework 2. Standardised approach to operational risk By Australian Prudential Regulation Authority
  3. Implementation of the Basel II Capital Framework 1. Standardised approach to credit risk By Australian Prudential Regulation Authority
  4. Implementation of the Basel II Capital Framework 3. Internal ratings-based approach to credit risk By Australian Prudential Regulation Authority
  5. Fit and Proper Requirements By Australian Prudential Regulation Authority
  6. Red Tape, Corruption and Finance By Keith Blackburn; Rashmi Sarmah
  7. Implementation of the Basel II Capital Framework 4. Advanced measurement approaches to operational risk By Australian Prudential Regulation Authority
  8. APRA ASIC Working Group Status Report By Australian Prudential Regulation Authority
  9. Adoption of International Financial Reporting Standards Prudential Approach 2. Tier 1 Capital and Securitisation By Australian Prudential Regulation Authority
  10. Prudential supervision of general insurance stage 2 reforms: Risk and financial management By Australian Prudential Regulation Authority
  11. Corporate governance and regulation : can there be too much of a good thing ? By Bruno, Valentina G.; Claessens, Stijn
  12. Growth, public investment and corruption with failing institutions By David De La Croix; Clara Delavallade
  13. On MQS regulation, innovation and market coverage By E. Bacchiega; L. Lambertini; A. Mantovani
  14. An Exploratory Look into Labour Market Regulation By Anton Roskam
  15. Political economy of anti-corruption reform in two-candidate elections By Evrenk, Haldun
  16. Market Discipline and Subordinated Debt of Australian Banks By Neil Esho; Paul Kofman; Michael G Kollo; Ian G. Sharpe
  17. Learning in Bayesian Regulation By Koray, Semih; Saglam, Ismail
  18. The Allocative Cost of Price Ceilings: Lessons to be Learned from the US Residential Market for Natural Gas By Davis, Lucas W; Kilian, Lutz
  19. Stress Testing Housing Loan Portfolios: A Regulatory Case Study By Neil Esho; Anthony Coleman; Ilanko Sellathurai; Niruba Thavabalan
  20. Migrant Smuggling By Tamura, Yuji
  21. Reliability and Competitive Electricity Markets By Joskow, Paul L; Tirole, Jean
  22. Education, corruption and growth in developing countries By Cuong Le Van; Mathilde Maurel
  23. Institutional Enforcement, Labor-Market Rigidities, and Economic Performance By Cesar Calderon; Alberto Chong; Gianmarco Leon

  1. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Date: 2006–03–23
  2. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Date: 2005–07–28
  3. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Date: 2005–07–19
  4. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Date: 2005–07–28
  5. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Date: 2005–06–29
  6. By: Keith Blackburn; Rashmi Sarmah
    Abstract: We study the effects of red tape and corruption in a model of occupational choice, entry regulation and imperfect capital markets. Red tape is the set of rules and regulations that private agents are obliged to comply with in order to engage in entrepreneurial activity. Corruption is the payment of bribes to public officials for the purpose of circumventing red tape. Capital market imperfections are the asymmetries of information between borrowers and lenders about the returns to entrepreneurship. We show that both red tape and corrup- tion deter entrepreneurial activity, but that only corruption affects financial market outcomes, including the probability of bankruptcy and the costs of verifying bankruptcy claims. The existence of corruption compounds the effects of both aggregate uncertainty and capital market frictions, each of which compounds the effects of corruption. We examine the interactions between red tape and corruption when both are endogenous to the bureaucratic process.
    Date: 2006
  7. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Date: 2005–10–04
  8. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Abstract: The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) continue to work together to identify ways to reduce the regulatory burden on entities regulated by ASIC and APRA. <p> Over the past year, the agencies worked with the Treasury to remove some of the legislative sources of regulatory overlap, inconsistency or duplication. The agencies are now reviewing their administrative practices for unnecessary regulatory burden and evaluating how any overlaps, inconsistencies or duplication might be reduced.
    Keywords: APRA ASIC Working Group Status Report
    JEL: G28
    Date: 2007–02–05
  9. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Date: 2005–08–31
  10. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Date: 2005–05–03
  11. By: Bruno, Valentina G.; Claessens, Stijn
    Abstract: For a large number of companies from different countries, the authors analyze how company corporate governance practices and country regulatory regimes interact in terms of company valuation. They confirm that corporate governance plays a crucial role in efficient company monitoring and shareholder protection, and consequently positively impacts valuation. They find substitution in valuation impact between corporate governance measures at the company and country level, with a possibility of over-regulation. Corporate governance appears more valuable for companies that rely heavily on external financing, consistent with the hypothesis that the main role of corporate governance is to protect external financiers.
    Keywords: National Governance,Governance Indicators,Corporate Law,Microfinance,Small Scale Enterprise
    Date: 2007–03–01
  12. By: David De La Croix (CORE - Department of Economics - [Université Catholique de Louvain]); Clara Delavallade (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    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 distorsion, we propose an optimal growth model where households vote for the composition of public spending subject to an incentive constraint reflecting individuals' 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 with 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.
    Date: 2007–02–08
  13. By: E. Bacchiega; L. Lambertini; A. Mantovani
    Date: 2006–11
  14. By: Anton Roskam (Institute of Development and Labour Law,University of Cape Town)
    Abstract: Abstract: This paper welcomes the fact that the discussion about the labour market and small business has broadened in scope. It considers some of the suggestions made by Cheadle (2006) in his recent concept paper. These include dismissals, unfair labour practices, appointments and promotions and collective bargaining. It also suggests that other changes to our labour laws are necessary, including the need for a doctrine of equal pay for equivalent work, the regulation of labour broker arrangements and other atypical employees, and the manner in which terms and conditions of employment can be amended. Besides legislative amendments it argues against the demise of the Labour Court and for greater administrative and judicial efficiency in that court.
    Keywords: labour market, small business, dismissals, unfair labour practice
    JEL: A1
    Date: 2007–01
  15. By: Evrenk, Haldun
    Abstract: We analyze the effectiveness of some commonly discussed anti--corruption reforms on political corruption, using a theoretical model of competition between two candidates in a probabilistic voting setup. Candidates, who may differ both in their ability to produce the public good, and popularity with voters, propose a tax rate and a public good level. The budget constraint implies that taxes collected must equal the sum of funds used in public good production plus funds stolen by the elected politician. We identify the conditions under which constitutional constraints on policies, higher penalties for corruption, and higher wages for elected politicians increase (or decrease) voters' welfare. We discuss how the asymmetric information and the rigidity of constitutions reduce the effectiveness of the reforms, and how distributional effects of reforms may reduce the voters' support for a welfare--improving reform. Finally, we argue that effective reforms may not be proposed by both corrupt and honest politicians.
    Keywords: Political Agency; Constitutional Design; Political Economy of Reform
    JEL: D72 K42
    Date: 2002–10
  16. By: Neil Esho; Paul Kofman; Michael G Kollo; Ian G. Sharpe (Australian Prudential Regulation Authority)
    Abstract: We examine evidence of market discipline in domestic and international subordinated debt of Australian banks. We estimate fixed effects panel error correction models to examine long-run relationships and short-run dynamics between bond risk spreads and accounting measures of bank risk. We find a significant long-run equilibrium relationship between the risk spread and both the impaired loans ratio and risk-adjusted capital ratio of Australian banks, consistent with the presence of market discipline. There is also evidence of significant short-run causality with changes in the one quarter lagged risk spread predicting changes in the current impaired loans ratio and somewhat weaker evidence of reverse causality. The results generally support the Basel Committee’s regulatory approach of seeking a greater role for market discipline in prudential regulation and supervision.<p>
    Date: 2005–10–01
  17. By: Koray, Semih; Saglam, Ismail
    Abstract: We examine the issue of learning in a generalized principal-agent model with incomplete information. We show that there are situations in which the agent prefers a Bayesian regulator to have more information about his private type. Moreover, the outcome of the Bayesian mechanism regulating the agent is path-dependent; i.e. the convergence of the regulator's belief to the truth does not always yield the complete information outcome.
    Keywords: Learning; Principle-Agent Model; Bayesian Regulation; Incomplete Information Learning.
    JEL: D83 D82
    Date: 2005–04
  18. By: Davis, Lucas W; Kilian, Lutz
    Abstract: Following a Supreme Court decision in 1954, natural gas markets in the U.S. were subject to 35 years of intensive federal regulation. Several studies have measured the deadweight loss from the price ceilings that were imposed during this period. This paper concentrates on an additional component of welfare loss that is rarely discussed. In particular, when there is excess demand for a good such as natural gas for which secondary markets do not exist, an additional welfare loss occurs when the good is not allocated to the buyers who value it the most. We quantify the overall size of this allocative cost, its evolution during the post-war period, and its geographical distribution, and we highlight implications of our analysis for the regulation of other markets. Using a household-level, discrete-continuous model of natural gas demand we estimate that the allocative cost averaged $8.1 billion annually in the U.S. residential market for natural gas during 1950-2000, effectively doubling previous estimates of the total welfare losses from natural gas regulation. We find that these allocative costs were borne disproportionately by households in the Northeast, Midwest, and South Atlantic states. Costs were largest in New York, Pennsylvania, and Massachusetts with 70% of all costs borne by the ten states affected most.
    Keywords: allocative cost; deadweight loss; natural gas; price ceiling; regulation
    JEL: D45 L51 L71
    Date: 2007–02
  19. By: Neil Esho; Anthony Coleman; Ilanko Sellathurai; Niruba Thavabalan (Australian Prudential Regulation Authority)
    Abstract: Against the backdrop of sharply rising house prices and Central Bank warnings that housing credit growth was not sustainable, the Australian Prudential Regulation Authority (APRA) conducted a ‘stress test’ to gauge the resilience of 120 Australian banks, building societies and credit unions to a substantial correction in the housing market. The stress test scenario mapped a 30 per cent fall in house prices to a substantial increase in default and loss rates. The results showed that all 120 institutions would remain solvent under the imposed conditions, however 11 institutions’ capital ratios fell below their regulatory minima. This paper details the stress testing methodology and traces through the various stages of the project, from background research, to stress test design, implementation, supervisory follow-up, public dissemination of the results and resulting policy changes.<p>
    Date: 2005–09–09
  20. By: Tamura, Yuji (Department of Economics and IIIS, Trinity College Dublin)
    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
    JEL: F22 J61 D82 L15 K42
    Date: 2007
  21. By: Joskow, Paul L; Tirole, Jean
    Abstract: This paper seeks to bridge the gap between economists focused on designing competitive market mechanisms and engineers focused on the physical attributes and engineering requirements they perceive as being needed for operating a reliable electric power system. The paper starts by deriving the (second-best) optimal prices and investment program when there are price-insensitive retail consumers, but when their load serving entities can choose any level of rationing they prefer contingent on real time prices. It then examines the assumptions required for a competitive wholesale and retail market to achieve this optimal price and investment program. The paper analyses the implications of relaxing several of these assumptions. First, it analyzes the interrelationships between regulator-imposed price caps and capacity obligations. It goes on to explore the implications of potential network collapses, the concomitant need for operating reserve requirements and whether market prices will provide incentives for investments consistent with these reserve requirements.
    Keywords: electricity; incentives; regulation
    JEL: L1 L5 L9
    Date: 2007–02
  22. By: Cuong Le Van (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Mathilde Maurel (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: Education is key in explaining growth, as emphasized recently by Krueger and Lindahl (2001). But for a given level of education, what can explain the missing growth in developing countries ? Corruption, the poor enforcement of property rights, the government share of property rights, the government share of GDP, the regulations it imposes might influence the Total Factor Productivity (TFP thereafter) of a country's economic system. A number of empirical papers emphasize the consequences bad institutions have on growth, but few are examining the link between education, corruption (more generally bad institutions) and growth. Our model assumes that at low level of GDP per head and high level of corruption education spending has no impact on growth. The slope gets positive only at above critical size of corruption. The implications are tested using the data set of Xavier Sala-i-Martin, Gernot Doppelhofer and Ronald I. Miller (2004), which is extended with the aggregate governance indicators of Kaufman et ali.
    Keywords: Public spending, education, corruption, endogeneous growth.
    Date: 2007–02–08
  23. By: Cesar Calderon (World Bank); Alberto Chong (Inter-American Development Bank); Gianmarco Leon (Inter-American Development Bank)
    Abstract: This paper study the issue of institutional enforcement of regulations by focusing on labor-market policies and their potential link to economic performance. It test the different impacts of enforceable and non-enforceable labor regulations by proxying non-enforceable labor rigidity measures using data on conventions from the International Labor Organization (ILO). It has been argued that non-enforceable conventions -that is, those that exist on paper and are simply de jure regulations -appear to be more distortionary and tend to be the least enforced in practice (Squire and Suthiwart-Narueput, 1997). According to Freeman (1993), these conventions reflect the ideal regulatory framework from an institutionalist perspective and cover a variety of labor market issues, from child labor to placement agencies. Whereas in theory, a country's ratification of ILO conventions gives the country legal status and thus supersedes domestic regulations relating to those issues, in practice the degree of labor-market rigidity depends on how the conventions are enforced. It is the outcome of the regulations that matters, rather than their number.
    Keywords: Institutions; Enforcement; Labor Rigidities; Growth; GMM-IV JEL Classification Codes: O10, E60, J08, O40
    JEL: O10
    Date: 2006–10

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