nep-reg New Economics Papers
on Regulation
Issue of 2007‒04‒14
thirteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Voluntary Environmental Regulation in Developing Countries: Fad or Fix? By Blackman, Allen
  2. Jolian McHardy, Michael Reynolds and Stephen Trotter. By Jolian McHardy; Michael Reynolds; Stephen Trotter
  3. Utilities reforms and corruption in developing countries By Antonio Estache; Ana Goicoechea; Lourdes Trujillo
  4. Universal Service Obligations and Competition with Asymmetric Information By Poudou, J.C.; Roland, M.; Thomas, L.
  6. Regulation and marketisation in the Portuguese higher education system By Miguel Portela; Nelson Areal; Carla Sá; Fernando Alexandre; João Cerjeira; Ana Carvalho; Artur Rodrigues
  7. Competitive effects of Basel II on U.S. bank credit card lending By William W. Lang; Loretta J. Mester; Todd A. Vermilyea
  8. Bank supervision Russian style: Evidence of conflicts between micro- and macroprudential concerns By Claeys, Sophie; Schoors, Koen
  9. The Origins of State Capacity: Property Rights, Taxation, and Politics By Timothy Besley; Torsten Persson
  10. Do we Know More Now? Trends in Public Knowledge, Support and Use of Fair Housing Law By Martin D. Abravanel
  11. Bankruptcy: Is it enough to forgive or must we also forget? By Ronel Elul; Piero Gottardi
  12. VIP-room Contractual System of Macau’s Traditional Casino Industry By Wuyi Wang; William R. Eadington
  13. Collateral Damage: Exchange Controls and International Trade By Shang-Jin Wei; Zhiwei Zhang

  1. By: Blackman, Allen (Resources for the Future)
    Abstract: Hamstrung by weak institutions that undermine conventional environmental regulatory tools, policymakers in developing countries are increasingly turning to voluntary approaches. Yet the evaluative literature on the topic is thin. To help fill this gap, we review arguments for and against the use of voluntary regulation in developing countries and present three case studies: a series of agreements negotiated between regulators and leather tanners in Guanajuato, Mexico; a national environmental audit program in Mexico; and a national public disclosure program in Indonesia. Admittedly few in number, these case studies nevertheless suggest that although voluntary environmental regulation in developing countries is a risky endeavor, it is by no means doomed to failure. The risks can be minimized by emphasizing the dissemination of information about pollution and pollution abatement options and by avoiding voluntary tools in situations where regulatory and nonregulatory pressures for improved environmental performance are weak and where polluters can block quantified targets, individual sanctions for noncompliance, and other widely accepted prerequisites of effective initiatives.
    Keywords: voluntary regulation, environment, developing country, Mexico, Indonesia
    JEL: Q28 O13
    Date: 2007–03–16
  2. By: Jolian McHardy (Department of Economics, The University of Sheffield); Michael Reynolds; Stephen Trotter
    Abstract: The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.
    Keywords: Networks, Regulation, Duopoly, Agent
    JEL: D43 L13 R48
    Date: 2007–02
  3. By: Antonio Estache; Ana Goicoechea; Lourdes Trujillo (Department of Economics, City University, London and DAEA, Universidad de Las Palmas de Gran Canaria)
    Abstract: This paper shows empirically that “privatization” in the energy, telecommunications and water sectors, and the introduction of independent regulators in those sectors, have not always had the expected effects on access, affordability or quality of services. It also shows that corruption leads to adjustments in the quantity, quality, and price of services consistent with the profit-maximizing behaviour that one would expect from monopolies in the sector. Finally, our results suggest that privatization and the introduction of independent regulators have, at best, only partial effects on the consequences of corruption for access, affordability and quality of utilities services.
    Date: 2007–04
  4. By: Poudou, J.C.; Roland, M.; Thomas, L.
    Abstract: This paper takes into account adverse selection in the implementation of universal service obligations (USOs) for a network industry with no bypass. USOs are characterized by a coverage constraint imposed on the network’s owner. We develop fully the model for a welfare maximizing coverage constraint and explain how to adapt it for a full coverage (ubiquity) constraint. We use a market without USO as a benchmark case. We show that, because of information rents, a sufficiently high shadow cost of public funds can lead to a lower coverage with the USO than without it when firms turn out to be relatively inefficient. If the regulator is able to determine the industry structure by issuing licences to operate, the optimal number of firms reflects a trade-off between allocative efficiency and the industry capacity to finance internally the USO. The shadow cost of public funds then plays a dual role as it determines the terms of this efficiency funding trade-off in addition to the terms of the traditionnal efficiency rent trade-off.
    Keywords: universal service obligations, coverage constraints, asymmetric information, regulation
    JEL: D82 K23 L43 L51
    Date: 2007
  5. By: Marquez, Pablo
    Abstract: The author studies three aspects of human live valuation and its relation with cost benefit analysis and regulation. More precisely the author addresses the problem of valuation of a statistical human life and its relation with cost benefit analysis in mortality risk reduction. First, studies the debate about Valuation of a Statistical Human Life (VSL) and Cost-Benefit Analysis (CBA) in mortality risks regulation; second, deals with two challenges to CBA and VSL, these are (a) the problem of discount rates and the problem of (dis)counting of future human lives, and (b), tests if culture (represented as a set of values) has an incidence in risk preferences and therefore, in willingness to pay for life in different countries.
    Keywords: Cost Benefit Analysis; Value of a Statistical Life; Culture Consequences; Regulation; Cross-country analysis
    JEL: K32 K13 K29 K23
    Date: 2006–12
  6. By: Miguel Portela (Universidade do Minho - NIPE, Tinbergen Institute and IZA Bonn); Nelson Areal (Universidade do Minho - NEGE); Carla Sá (Universidade do Minho - NIPE); Fernando Alexandre (Universidade do Minho - NIPE); João Cerjeira (Universidade do Minho - NIPE); Ana Carvalho (Universidade do Minho - NEGE); Artur Rodrigues (Universidade do Minho - NEGE)
    Abstract: This paper builds on the ongoing discussion on regulation and marketisation of higher education. It aims at investigating the higher education market (des)equilibrium. Teixeira, Rosa and Amaral (2004) have analysed the presence/absence of market mechanisms in the Portuguese higher education sector. We go a step further in quantifying the (mis)mactching between demand and supply, by suggesting and computing a set of indicators, which provide the starting point for a ranking-based analysis. Institutional rankings are central to overcome the problem of absence of information on quality in higher education systems, which is a basic requirement for a real higher education market.
    Keywords: higher education market, demand, supply
    JEL: I21 I28
    Date: 2007
  7. By: William W. Lang; Loretta J. Mester; Todd A. Vermilyea
    Abstract: The authors analyze the potential competitive effects of the proposed Basel II capital regulations on U.S. bank credit card lending. They find that bank issuers operating under Basel II will face higher regulatory capital minimums than Basel I banks, with differences due to the way the two regulations treat reserves and gain-on-sale of securitized assets. During periods of normal economic conditions, this is not likely to have a competitive effect; however, during periods of substantial stress in credit card portfolios, Basel II banks could face a significant competitive disadvantage relative to Basel I banks and nonbank issuers. ; Payment Cards Center Discussion Paper No. 07-04
    Keywords: Basel capital accord ; Credit cards
    Date: 2007
  8. By: Claeys, Sophie (Research Department, Central Bank of Sweden); Schoors, Koen (CERISE)
    Abstract: Supervisors sometimes have to manage both the micro- and macro- prudential dimensions of bank stability. These may either conflict or complement each other. We analyze prudential supervision by the Central Bank of Russia (CBR). We find evidence of micro-prudential concerns, measured as the rule-based enforcement of bank standards. Macro-prudential concerns are also documented: Banks in concentrated bank markets, large banks, money center banks and large deposit banks are less likely to face license withdrawal. Further, the CBR is reluctant to withdraw licenses when there are “too many banks to fail”. Finally, macro-prudential concerns induce regulatory forbearance, revealing conflicts with micro-prudential objectives.
    Keywords: Prudential Supervision; Bank Stability; Systemic Stability
    JEL: E50 G20 N20
    Date: 2007–03–01
  9. By: Timothy Besley; Torsten Persson
    Abstract: Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.
    JEL: D70 E60 H10 K40 O10
    Date: 2007–04
  10. By: Martin D. Abravanel
    Abstract: The federal Fair Housing Act defines basic obligations, protections, and enforcement provisions pertaining to housing discrimination in the United States. Although enacted in 1968, it was not until 2001 that we learned the extent of the general public’s awareness of and support for this law and the degree to which persons believing they were victims of housing discrimination sought to take advantage of its enforcement provisions. This report documents what we have learned since that time, based on new information.
    JEL: K30
    Date: 2006–02
  11. By: Ronel Elul; Piero Gottardi
    Abstract: In many countries, lenders are not permitted to use information about past defaults after a specified period of time has elapsed. The authors model this provision and determine conditions under which it is optimal. ; They develop a model in which entrepreneurs must repeatedly seek external funds to finance a sequence of risky projects under conditions of both adverse selection and moral hazard. They show that forgetting a default makes incentives worse, ex-ante, because it reduces the punishment for failure. However, following a default it is generally good to forget, because pooling riskier agents with safer ones makes exerting high effort to preserve their reputation more attractive. ; The authors' key result is that if agents are sufficiently patient, and low effort is not too inefficient, then the optimal law would prescribe some amount of forgetting --- that is, it would not permit lenders to fully utilize past information. The authors also show that such a law must be enforced by the government - no lender would willingly agree to forget. Finally, they also use their model to examine the policy debate that arose during the adoption of these rules. ; Payment Cards Center Discussion Paper No. 07-05
    Date: 2007
  12. By: Wuyi Wang (Macau Polytechnic Institute); William R. Eadington (Department of Economics, University of Nevada, Reno)
    Abstract: This study provides a systematic analysis of the VIP-room contractual system of Macau’s traditional casino industry. It examines the system’s historical background, its organizational structure, its operational mechanisms, and its role in Macau’s casino industry. This analysis examines the evolving and likely future changes in the VIP-room sector—as well as the mass market sector—caused by the liberalization of Macau’s gaming laws in 2001 and the Free Individual Travelers Scheme, introduced by the Chinese government in 2003. This study develops a framework to explain how the two sectors’ market shares are determined by examining the economic and cultural forces at work. The existing structure of the VIP-room contractual system in Macau’s casino industry will not likely continue in its traditional way, and will be replaced by newly evolving systems consistent with the new competitive realities. However, the VIP business will likely continue in one form or another.
    Keywords: Regulation, gambling, casinos, Macau, baccarat
    JEL: L13 L51 L83
    Date: 2007–01
  13. By: Shang-Jin Wei; Zhiwei Zhang
    Abstract: While new conventional wisdom warns that developing countries should be aware of the risks of premature capital account liberalization, the costs of not removing exchange controls have received much less attention. This paper investigates the negative effects of exchange controls on trade. To minimize evasion of controls, countries often intensify inspections at the border and increase documentation requirements. Thus, the cost of conducting trade rises. The paper finds that a one standard-deviation increase in the controls on trade payment has the same negative effect on trade as an increase in tariff by about 14 percentage points. A one standard-deviation increase in the controls on FX transactions reduces trade by the same amount as a rise in tariff by 11 percentage points. Therefore, the collateral damage in terms of foregone trade is sizable.
    JEL: F1 F31 F36
    Date: 2007–04

This nep-reg issue is ©2007 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.