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on Regulation |
| By: | Deša Mlikotin Tomić (Faculty of Economics and Business, University of Zagreb); Marta Božina (Faculty of Economics and Business, University of Zagreb) |
| Abstract: | This paper examines the impact of regulation on market competition and market performances. It analyses the importance of strict financial regulation for a well performing economy. Heavy regulation decreases market flexibility, vital in the financial sector and decreases the possibility of competition. In a rigid legal environment economic actors will be drawn to the possibility of avoiding legal rules, and operate in a informal manner. At the same time regulation is necessary to enable financial stability, market integrity and confidence. This aspects are very important in transition countries which are on the way to implement and accept the modern market mechanism which are replacing state economy. The paper discusses the legal tendencies in regulating the financial sector in EU, the benchmark for Croatian legislation. In order to understand the scope and to be able to advocate this legislation and institutions a sight on its roots and development in US is also laid down. In spite of the outmost goal of transparency the European legislation is rather complicated and reveals more the interests of biggest stakeholders and professional rent seeking groups than genuine public and small investor’s expectation. In assessing concrete legal solutions, European directives are so far the only international model of financial supervision in a predominantly national regulatory environment. The question about its positive effects inducing economic growth at the top although intricate on such level of abstraction is not yet too confirmed. It is not about bundle of legislation but its nature and pace of implementation that will gradually induce confidence and investment. In order to achieve that open and right questions are to be publicly advocated rather than premature and anticipating statements. The question posed is if regulation is a core factor in good financial and overall economic performance in countries around the world, or is it only a trend in EU and transition countries. |
| Keywords: | regulation, informality, competition, securities, insider trading market, financial sector regulation, comitology |
| JEL: | K22 |
| Date: | 2007–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:zag:wpaper:0709&r=reg |
| By: | Afia Malik (Pakistan Institute of Development Economics, Islamabad.) |
| Abstract: | This paper is an attempt to study the regulatory environment in the electricity sector of Pakistan. NEPRA, a regulatory authority was formed in 1997 to protect consumer interests in the area of electricity provision, and to ensure an efficient and competitive environment for the electricity generators and distributors, but it has so far not been able to achieve anything. The power sector (dominated by WAPDA and KESC) is still affected by institutional and organisational weaknesses, with inefficient and non-optimal tariffs, high line losses, and high level of corruption. It has been found weak administrative governance in NEPRA in the form of lack of autonomy, resulting in the overall institutional inability to carry out the desired functions effectively. In addition, NEPRA is lacked in professional expertise to supervise and control the power sector and establish a rational and equitable pricing regime. |
| Keywords: | Electricity, NEPRA, Pakistan, Reforms, Regulation |
| JEL: | G38 L33 L43 L51 Q48 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pid:wpaper:2007:25&r=reg |
| By: | Alvaro Aguiar (CEMPRE, Faculdade de Economia, Universidade do Porto, Portugal); Ines Drumond (CEMPRE, Faculdade de Economia, Universidade do Porto, Portugal) |
| Abstract: | This paper improves the analysis of the role of financial frictions in the transmission of monetary policy and in business cycle fluctuations, by focusing on an additional channel working through bank capital. Detailing a dynamic general equilibrium model, in which households require a (countercyclical) liquidity premium to hold bank capital, we find that, together with the financial accelerator, the introduction of regulatory bank capital significantly amplifies monetary shocks through a liquidity premium effect on the external finance premium faced by firms. This amplification effect is larger under Basel II than under Basel I regulatory rules. Indeed, introducing bank capital enhances the role of financial frictions in the propagation of shocks, in line with arguments in related literature. |
| Keywords: | Bank capital channel; Bank capital requirements; Financial accelerator; Liquidity premium; Monetary transmission mechanism; Basel Accords |
| JEL: | E44 E32 E52 G28 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:242&r=reg |
| By: | Michael Alexeev (Indiana University Bloomington); Luba Habodaszova (City University/VSM, Bratislava, Slovakia) |
| Abstract: | We analyze the implications of decentralization for the incentives of local governments to provide productivity enhancing local public goods and extort bribes from local entrepreneurs. We show that an increase in the share of locally raised tax revenue left with the local government raises its incentives to provide public goods and brings more entrepreneurs into the official economy. Corruption, measured by the size of bribes that local officials charge entrepreneurs for issuing licenses for operating officially, may increase or decrease, depending on the extent to which public goods enhance the entrepreneur’s productivity. The tests using cross-sectional country-level data support the model’s implications. |
| Keywords: | decentralization, local public goods, corruption, unofficial economy |
| JEL: | H77 D73 O17 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2007008&r=reg |
| By: | Memmel, Christoph; Raupach, Peter |
| Abstract: | We analyze the dynamics of banks’ regulatory capital ratios. Using monthly data of regulatory capital ratios for a subset of large German banks, we estimate the target level and the adjustment speed of the capital ratio for each bank separately. We find evidence that, first, there exists a target level for a substantial percentage of banks; second, that private banks and banks with liquid assets are more likely to adjust their capital ratio tightly; and third, that banks compensate for low target capital ratios with low asset volatilities and high adjustment speeds. Fourth, banks with a target capital ratio seem to use an internal lower limit for their current ratios that is just above the regulatory minimum of 8%. |
| Keywords: | Regulatory bank capital, target capital ratio, partial adjustment, Ornstein-Uhlenbeck process |
| JEL: | G21 G32 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:5577&r=reg |
| By: | Subhayu Bandyopadhyay; Suryadipta Roy |
| Abstract: | This paper provides new estimates of the effects of corruption and poor institutions on trade protection. It exploits data on several measures of trade protection including import duty, international trade taxes, and the trade-GDP ratio. The paper complements the literature on the relationship between corruption and trade reform. It deviates from the previous literature in several ways. First, unobserved heterogeneity among countries have been controlled with properly specified fixed effects exploiting the time dimension present in the dataset. Secondly, instead of using tariff and non-tariff barriers, more general measures of trade protection have been used. The issue of endogeneity of corruption with respect to trade policy has been addressed using proper instruments for corruption used in previous studies. Moreover, two separate institutional measures have been used in the same regression to estimate their comparative impacts on trade policy. In general, we find that corruption and lack of contract enforcement have strong impacts to increase trade protection and negative effects on trade openness. |
| Keywords: | Tariff ; International trade |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2007-22&r=reg |
| By: | Jiandong Ju; Shang-Jin Wei |
| Abstract: | This paper proposes a simple model to study the relationship between domestic institutions - financial system, corporate governance, and property rights protection - and patterns of international capital flows. It studies conditions under which financial globalization can be a substitute for reforms of domestic financial system. Inefficient financial system and poor corporate governance in a country may be completely bypassed by two-way capital flows in which domestic savings leave the country in the form of financial capital outflows but domestic investment takes place via inward foreign direct investment. While financial globalization always improves the welfare of a developed country with a good financial system, its effect is ambiguous for a developing country with an inefficient financial sector/poor corporate governance. However, the net effect for a developing country is more likely to be positive, the stronger its property rights protection. This is consistent with the observation that developed countries are often more enthusiastic about capital account liberalization around the world than many developing countries. A noteworthy feature of this theory is that financial and property rights institutions can have different effects on capital flows. |
| JEL: | F21 F30 G15 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13148&r=reg |
| By: | Marcus Noland (Peterson Institute for International Economics) |
| Abstract: | Japan faces significant challenges in encouraging innovation and entrepreneurship. Attempts to formally model past industrial policy interventions uniformly uncover little, if any, positive impact on productivity, growth, or welfare. The evidence indicates that most resource flows went to large, politically influential “backward” sectors, suggesting that political economy considerations may be central to the apparent ineffectiveness of Japanese industrial policy. Rather than traditional industrial or science and technology policy, financial and labor market reforms appear more promising. As a group, Japan’s industrial firms are competitive relative to their foreign counterparts. Japan falls behind in the heavily regulated service sector. The problems are due less to a lack of industrial policy than to an excess of regulation. Japan may have more to gain through restructuring the lagging service sector than by expending resources in pursuit of marginal gains in the industrial sector. |
| Keywords: | Japan, industrial policy, innovation policy |
| JEL: | O3 L52 F13 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp07-4&r=reg |
| By: | Haaparanta , Pertti (BOFIT); Juurikkala, Tuuli (BOFIT) |
| Abstract: | Russian industrial enterprises inherited from the Soviet era a tradition of producing welfare and infrastructure services within the firm, also for outside users. Despite the massive restructuring of the economy that took place since, many firms are still active in service provision. At the same time, opaque fiscal federalism is a problem for municipalities whereas rent extraction by public sector officials is a problem for firms. In this paper we examine whether there is a link between these phenomena. We propose a model on local fiscal incentives, service provision by firms and the municipality-firm relationship in the form of bribes. Using survey data from 404 medium and large industrial enterprises in 40 regions of Russia, we find that the higher the share of own revenues in the local budget, the more likely the firms are to report bribes. In the case of infrastructure services, the data also support the hypothesis that the channel is through service provision: the less fiscal autonomy, the more service provision and the less likely the firms are to report bribes. |
| Keywords: | local fiscal incentives; corruption; service provision; Russia; firm survey |
| JEL: | H77 M14 P31 |
| Date: | 2007–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2007_012&r=reg |
| By: | Alexander Stremitzer |
| Abstract: | If a seller delivers a good non-conforming to the contract, Article 2 of the UCC as well as European warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer resorts to "opportunistic termination", i.e. takes non- conformity as a pretext to get rid of a contract he no longer wants. We show that the possibility of opportunistic termination might actually have positive ef- fects. Under some circumstances, it will lead to redistribution in favour of the buyer without any loss of efficiency. Moreover, by curbing the monopoly power of the seller, a regime involving termination increases welfare by enabling a more efficient output level in a setting with multiple buyers. |
| Keywords: | contract law, warranties, breach remedies, termination, harmonization |
| JEL: | K12 C7 L40 D30 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse7_2007&r=reg |
| By: | Paul Hallwood (University of Connecticut) |
| Abstract: | It is shown that low dispute costs relative to expected resource rents from oceanic resources favor drawn out disputes over maritime boundaries; asymmetric dispute costs favor agreement on boundaries wanted by the low dispute cost state party; and high symmetric dispute costs favor formation of joint development zones. The fact that most maritime boundaries have not yet been drawn suggests that state parties think that resource rents that can be drawn from the oceans are high relative to dispute costs. Moreover, the recent mini-trend towards JDZs in East Asia suggests that state parties in the area have recently reassessed dispute costs as being higher than previously believed. |
| Keywords: | Law of the Sea, joint development zones, maritime boundaries, marine boundaries, lines in the sea |
| JEL: | F51 Q22 Q58 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2007-21&r=reg |
| By: | Carl Shapiro |
| Abstract: | Economists and policy makers have long recognized that innovators must be able to appropriate a reasonable portion of the social benefits of their innovations if innovation is to be suitably rewarded and encouraged. However, this paper identifies a number of specific fact patterns under which the current U.S. patent system allows patent holders to capture private rewards that exceed their social contributions. Such excessive patentee rewards are socially costly, since they raise the deadweight loss associated with the patent system and discourage innovation by others. Economic efficiency is promoted if rewards to patent holders are aligned with and do not exceed their social contributions. This paper analyzes two major reforms to the patent system designed to spur innovation by better aligning the rewards and contributions of patent holders: establishing an independent invention defense in patent infringement cases, and strengthening the procedures by which patents are re-examined after they are issued. Three additional reforms relating to patent litigation are also studied: limiting the use of injunctions, clarifying the way in which "reasonable royalties" are calculated, and narrowing the definition of "willful infringement." |
| JEL: | O3 O30 O31 O34 O38 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13141&r=reg |