|
on Regulation |
| By: | Axel Dreher (KOF Swiss Economic Institute, ETH Zurich Switzerland and CESifo, Germany); Martin Gassebner (Department of Management, Technology, and Economics, ETH Zurich) |
| Abstract: | The paper investigates whether the impact of regulations on entrepreneurship depends on corruption. We first test whether regulations robustly deter firm entry into the markets. Our results show that some regulations are indeed important determinants of entrepreneurial activity. Specifically, more procedures required to start a business and larger minimum capital requirements are detrimental to entrepreneurship. Second, we test whether corruption reduces the negative impact of regulations on entrepreneurship in highly regulated economies. Our empirical analysis for a maximum of 43 countries over the period 2003-2005 shows that corruption is beneficial in highly regulated economies. At the maximum level of regulation among our sample of countries, corruption significantly increases entrepreneurial activity. Our results thus provide support for the ‘grease the wheels’ hypothesis. |
| Keywords: | corruption, start-ups, grease the wheels, entrepreneurship, regulation, doing business |
| JEL: | D73 F59 M13 L26 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:07-166&r=reg |
| By: | Steven Shavell |
| Abstract: | When is it socially advantageous for legal rules to be changed in the light of altered circumstances? In answering this basic question here, a simple point is developed -- that past compliance with legal rules tends to reduce the social advantages of legal change. The reasons are twofold: adjusting to a new legal rule often involves costs; and the social benefits of change are frequently only incremental, only in addition to those of past compliance. The general implications are that legal rules should be more stable than would be appropriate were the relevance of past behavior not recognized, and that a policy of grandfathering, namely, of permitting noncompliance, should sometimes be employed. The analysis of these points has broad relevance, applying across legal fields, often explaining what we observe but also indicating possibilities for reform, such as in the regulation of air pollution. The analysis is related to the conventional reliance-based justification for the stability of the law, the literature on legal transitions, and economic writing on optimal legal standards. |
| JEL: | K1 K2 K32 L5 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13563&r=reg |
| By: | Tomas J. Philipson; Eric Sun |
| Abstract: | In the United States, drug safety and efficacy are primarily regulated by the Food and Drug Administration (FDA) and the legal system, which gives manufacturers large incentives to produce safe drugs and provide proper warnings for side effects, since patients can sue manufacturers that provide unsafe drugs and/or insufficient warnings. <br><br>In this paper, we begin by examining the efficiency implications of this joint regulation of drug safety. We find that joint regulation of drug safety can be inefficient when the regulatory authority mandates a binding and well enforced level of safety investment. In this case, product liability has no effect on a firm's safety investment, but affects welfare by raising a firm's costs and therefore prices. Using these results, we calibrate a model of the pharmaceutical market and find that, depending on the share of liability costs in marginal costs, a product liability exemption for activities that are well regulated by the FDA could increase consumer welfare by $47.8-$754.7 billion annually (4-66 percent of sales) and producer welfare by $11.9-$173.9 billion annually (1-15 percent of sales). <br><br>In addition, we summarize the welfare effects of recent legislation, the Prescription Drug User Fee Acts (PDUFA), which mandated faster FDA review times in exchange for user fees levied on the pharmaceutical industry. Overall, we find that the faster review times mandated by PDUFA raised social surplus by $18-31 billion, and that at most, the concomitant cost of reduced drug safety was $5.6-$16.6 billion. |
| JEL: | I0 I11 I18 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13561&r=reg |
| By: | Francisco Torres (Universidade Moderna de Lisboa,Universidade Católica); Annette Bongardt (Universidade Moderna de Lisboa) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:19/2007&r=reg |
| By: | Aditya Narain; Lev Ratnovski |
| Abstract: | While public financial institutions (such as public development banks) are commonly associated with developing countries, in fact they are prevalent in the developed world as well. We study a sample of public financial institutions in industrialized countries and identify dominant trends in their organization and oversight. While practices in developed countries may be a useful reference point, a more nuanced approach, accounting for the disparity of institutional environment, regulatory capacity, and government accountability and effectiveness, may be required in developing countries. Further investment in the accumulation of evidence and formulation of best practices in the organization and oversight of public financial institutions seems warranted and necessary. This paper was prepared while Mr. Ratnovski was working in the Financial Supervision and Regulation Division during January-April 2006. The authors are grateful to Jonathan Fiechter, David Marston, and participants of an MCM seminar in April 2006 for their helpful comments. |
| Keywords: | Working Paper , Financial institutions , Developed countries , Bank regulations , Bank supervision , Public sector , |
| Date: | 2007–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/227&r=reg |
| By: | David M. McEvoy (Department of Economics, Appalachian State University); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst) |
| Abstract: | Although the theoretical literature on the performance of voluntary approaches to environmental protection has progressed quite far in the last decade, no one has rigorously addressed the obvious point that even voluntary emissions control policies must be enforced. This paper examines the consequences of the need for costly enforcement of voluntary environmental agreements with industries on the ability of these agreements to meet regulatory objectives, the levels of industry participation with these agreements, and the relative efficiency of voluntary and regulatory approaches. We find that enforcement costs that are borne by the members of a voluntary emissions control agreement limit the circumstances under which an agreement can form in place of an emissions tax. However, if an agreement does form, member-financed enforcement induces greater participation than if compliance with the agreement could be enforced without cost to its members. Moreover, a voluntary emission control agreement with an industry can be a more efficient way to achieve an environmental quality objective than an emission tax, but only if: (1) the members of an agreement bear the costs of enforcing compliance with the agreement; (2) there exists member-financed agreements that reach the government’s environmental quality target while leaving the members of the agreement at least as well off as they would be under an emissions tax, and (3) the enforcer of the agreement has a significantly better monitoring technology or a higher sanction available to it than the government. |
| Keywords: | Voluntary agreements, self-enforcing agreements, emissions tax, enforcement |
| JEL: | L51 Q58 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:dre:wpaper:2007-11&r=reg |
| By: | Christian Hopp (University of Konstanz, Department of Economics, Chair of International Finance); Axel Dreher (KOF Swiss Economic Institute, ETH Zurich) |
| Abstract: | We empirically analyze the determinants of Initial Public Offering (IPO) underpricing using panel data for 29 countries over the period 1988-2005. Our hypotheses stress the importance of institutional and legal factors in explaining cross-country variations. We find that increased protection of shareholders and greater accounting transparency contribute negatively to variations in underpricing. When more information is available price discovery is facilitated, allowing for more effective corporate governance. Moreover, when equity markets perform well, investors anticipate companies and investment banks to time the market and require higher underpricing in return. Overall, we conclude that better investor protection and better institutional environments reduce the perceived risk of investing, and attenuate the problem of asymmetric information, thereby causing lower underpricing across countries. |
| Keywords: | IPO underpricing, institutions, legal infrastructure, panel data |
| JEL: | G15 H2 G1 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:07-172&r=reg |
| By: | Ghosal, Vivek |
| Abstract: | This paper empirically models the longer-run deep-seated shift in intellectual thinking that followed the Chicago School’s criticism of the older antitrust doctrine, the shorter-run driving forces related to switches of the political party in power, merger waves, changes in economic activity and the level of funding and quantifies their impact on enforcement by the Antitrust Division of the U.S. Department of Justice over the period 1958-2002. The key findings are: (1) a distinct regime-shift in antitrust enforcement during the 1970s and, post-regime-shift, there has been a marked compositional change with a quantitatively large increase (decrease) in criminal (civil) antitrust court cases initiated; (2) post-regime-shift, there appears to be a change in the role played by politics with Republicans initiating more (less) criminal (civil) court cases than Democrats and the estimated quantitative effects are large; (3) disaggregating the total number of court cases into the main categories under which they are initiated (price-fixing, mergers, monopolization and restraints-of-trade) shows that individual types of cases have widely differing responses to changes in the driving forces; and (4) in a horse-race between the regime-shift and political effect on one side and the remaining variables on the other, the former forces win hands-down in explaining broad shifts in enforcement. Modeling the longer-run shift and disaggregating the court cases emerge as crucial to gaining insights into the intertemporal shifts in enforcement. The paper elaborates on the causes for the shift in enforcement and on the effectiveness of antitrust. |
| Keywords: | Antitrust enforcement; regime-shift; politics; supreme court; effectiveness. |
| JEL: | L40 B00 K00 M20 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5460&r=reg |