nep-reg New Economics Papers
on Regulation
Issue of 2007‒06‒02
six papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Institutional Enforcement, Labor-Market Rigidities, and Economic Performance By Alberto Chong; César Caldeón; Gianmarco León
  2. Incentive Regulation of Electricity Distribution Networks: Lessons of Experience from Britain By Jamasb, T.; Pollitt, M.
  3. Contagion, Bankruptcy and Social Welfare Analysis in a Financial Economy with Risk Regulation Constraint By Aloísio P. Araújo; José Valentim M. Vicente
  4. Regulating a Multi-Utility Firm By Calzolari, Giacomo; Scarpa, Carlo
  5. The bird in hand: stipulated settlements and electricity regulation in Florida By Littlechild, S.
  6. Environmental Regulation and the Export Dynamics of Energy Technologies By Francesco Crespi; Valeria Costantini

  1. By: Alberto Chong (Inter-American Development Bank); César Caldeón (The World Bank); Gianmarco León (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: O10 E60 J08 O40
    Date: 2006–10
  2. By: Jamasb, T.; Pollitt, M.
    Abstract: This paper reviews the recent experience of the UK electricity distribution sector under incentive regulation. The UK has a significant and transparent history in implementing incentive regulation in the period since 1990. We demonstrate the successes of this period in reducing costs, prices and energy losses while maintaining quality of service. We also draw out the lessons for other countries in implementing distribution sector reform. We conclude by discussing the place of incentive regulation of networks within the wider reform context, the required legislative framework, the need for appropriate unbundling, the importance of quality of service incentives, the regulatory information requirements and the role of sector rationalisation.
    Keywords: Electricity, liberalisation, regulation, benchmarking
    JEL: L52 L94 Q48
    Date: 2007–02
  3. By: Aloísio P. Araújo; José Valentim M. Vicente
    Abstract: In the last years, regulatory agencies of many countries in the world, following recomendations of Basel Committee, have compeled financial institutions to maintain a minimum capital requirements to cover market and credit risks. This paper investigates the consequences about social welfare, contagion and the bankruptcy probability of such practice. We show that for each financial institution there is a level of regulation that maximizes its utility. Another important result asserts that risk regulation decreases contagion and under certain conditions can reduce the bankruptcy probability. We also analyze the trade-off faced by regulators involving the financial institutions welfare versus bankruptcy and contagion probabilities.
    Date: 2006–10
  4. By: Calzolari, Giacomo; Scarpa, Carlo
    Abstract: We study the regulation of a utility firm which is active in a competitive unregulated sector as well. If the firm jointly operates its activities in the two markets, it enjoys economies of scope, whose size is the firm’s private information and is unknown to the regulator and the rival firms. We jointly characterize the unregulated market outcome (with price and quantity competition) and also optimal regulation. Accounting for the several effects of regulation on the unregulated market, we show the existence of an informational externality, in that regulation provides useful information to the rival firms. Although joint operation of multi-utility’s activities generates scope economies, it also brings about private information to the multi-utility, so that regulation is less efficient and also the unregulated market may be negatively affected. Nevertheless, we show that letting the multi-utility integrate productions is (socially) desirable, unless joint production is instead characterized by dis-economies of scope.
    Keywords: asymmetric information; competition; informational externality; multi-utility firms; regulation; scope economies
    JEL: L43 L51 L52
    Date: 2007–05
  5. By: Littlechild, S.
    Abstract: In the last two decades many major regulatory issues in Florida have been resolved by means of stipulated settlements between the utilities and interested parties, notably the Office of Public Counsel, instead of by the traditional method of hearings and litigation before the Public Services Commission. This paper investigates the extent, nature and effects of these stipulations in the electricity sector there. They have now largely superceded the litigated process. Their purpose is not to save costs, which are orders of magnitude less than the revenues at stake. Stipulations have brought reductions in electricity revenues worth over $3 billion, mainly during the last decade. These reductions are greater than would have otherwise occurred: about three quarters might never have occurred at all. In some cases a change in the method of rate reduction favoured industrial consumers but other customers are nonetheless likely to have benefited despite this. Some benefits were outside the scope of the commission to confer. Other benefits reflected a more flexible accounting policy. Most importantly, there has been a shift from conventional rate of return regulation, and from earnings sharing schemes with profits caps, to prices fixed for specified periods of time with revenue-sharing incentive arrangements. Stipulations have transformed the regulatory landscape in the Florida electricity sector, and their use seems worth considering elsewhere.
    Keywords: stipulations, settlements, consumer advocate, regulation.
    JEL: L51 L97 L94 L
    Date: 2007–02
  6. By: Francesco Crespi (University of Roma Tre); Valeria Costantini (University of Roma Tre)
    Abstract: The pollution haven hypothesis affirms that an open market regime will encourage the flow of low technology polluting industries toward developing countries, due to potential comparative advantages related to low environmental standards. In contrast, the hypothesis suggested by Porter and van der Linde claims for a competitive dynamic behaviour by innovating firms, allowing a global diffusion of environmental-friendly technologies. Environmental regulation may represent a relevant mechanism through which technological change is induced. In this way countries subject to more stringent environmental regulations may become net exporters of environmental technologies. This paper provides new evidence on the evolution of export flows of environmental technologies across different countries for the energy sector. Advanced economies, particularly the European Union, have given increasing attention to the role of energy policies as tools for sustaining the development path. The Kyoto Protocol commitments, together with growing import dependence of energy products, have stimulated the attention on the analysis of innovation processes in this specific sector. The analysis uses a gravity model in order to test the determinants and the transmission channels through which environmental technologies for renewable energies and energy efficiency are exported to advanced and developing countries. Our results are consistent with the existence of the Porter and van der Linde hypothesis, where environmental regulation represents a significant component of comparative advantages. What strongly emerges is that the stringency of environmental regulation supplemented by the strength of National Innovation System is a crucial driver of export performance in the field of energy technologies.
    Keywords: Environmental Regulation, Trade and Environment, Energy Technologies
    JEL: F18 F21 Q43 Q55 Q56
    Date: 2007–05

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