nep-reg New Economics Papers
on Regulation
Issue of 2007‒11‒17
eleven papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Liberalisation and Regulation in Electricity Systems: How can we get the balance right? By Pollitt, M
  2. The Cost of Banking Regulation By Luigi Guiso; Paola Sapienza; Luigi Zingales
  3. Capital Structure and Regulation: Does Ownership Matter? By Carlo Cambini; Bernardo Bortolotti; Laura Rondi; Yossi Spiegel
  4. Electricity Network Investment And Regulation For A Low Carbon Future By Pollitt, M.; Bialek, J.
  5. Emergence and Persistence of Inefficient States* By Daron Acemoglu; Davide Ticchi; Andrea Vindigni
  6. Governance Reform in Legal Service Markets By Paul A.Grout; Ian Jewitt; Silvia Sonderegger
  7. Comparative analysis of the national biosafety regulatory systems in East Africa: By Jaffe, Gregory
  8. Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations Across Firms By Carmen Pages; Reyes Aterido; Mary Hallward-Driemeier
  9. Corruption, privatisation and the distribution of income in Latin America By Antonio Rodriguez; Carlyn Ramlogan
  10. Risk assessment and management of genetically modified organisms under Australia's Gene Technology Act: By Linacre, Nicholas; Falck-Zepeda, José; Komen, John; MacLaren, Donald
  11. Too Good to Be True? An Examination of Three Economic Assessments of California Climate Change Policy By Robert Stavins; Judson Jaffe; Todd Schatzki

  1. By: Pollitt, M
    Abstract: This paper explores the issue of the balance between liberalisation and regulation in electricity systems, which is the essence of much of the detailed policies which are implemented in the sector. By liberalisation I take to mean the use of market or quasi-market mechanisms as part of a reform of the sector, by regulation I take to mean regulatory intervention to restrain the operation of market signals which would otherwise have operated in the absence of regulation. The paper takes an international perspective to look at the case for liberalisation, the case for regulation and the evidence on the effects of liberalisation. It concludes with an assessment on the future for electricity liberalisation. This paper forms the foreward to Sioshansi, F.P. (2008) (ed.), Competitive Electricity Markets: Design, Implementation, Performance, Oxford: Elsevier and makes reference to the papers in that volume. Key words: Electricity liberalisation, electricity regulation.
    JEL: L94
    Date: 2007–09
  2. By: Luigi Guiso; Paola Sapienza; Luigi Zingales
    Abstract: We use exogenous variation in the degree of restrictions to bank competition across Italian provinces to study both the effects of bank regulation and the impact of deregulation. We find that where entry was more restricted the cost of credit was higher and - contrary to expectations - access to credit lower. The only benefit of these restrictions was a lower proportion of bad loans. Liberalization brings a reduction in rate spreads and an increased access to credit at the cost of an increase in bad loans. In provinces where restrictions to bank competition were most severe, the proportion of bad loans after deregulation raises above the level present in more competitive markets, suggesting that the pre-existing conditions severely impact the effect of liberalization
    Keywords: banking regulation, financial development, finance
    JEL: G0 G2 K2
    Date: 2007
  3. By: Carlo Cambini (Politecnico di Torino, DISPEA); Bernardo Bortolotti (Università di Torino and Fondazione Eni Enrico Mattei); Laura Rondi (Politecnico di Torino and CERIS-CNR); Yossi Spiegel (Tel Aviv University and CEPR)
    Abstract: We construct a comprehensive panel data of 96 publicly traded European utilities over the period 1994-2005 in order to study the relationship between the capital structure of regulated firms, regulated prices, and investments, and examine if and how this interaction is affected by ownership structure. We show that firms in our sample increase their leverage after becoming regulated by an independent regulatory agency, but only if they are privately controlled. Moreover, we find that the leverage of these firms has a positive and significant effect on regulated prices, but not vice versa, and it also has a positive and significant effect on their investment levels. Our results are consistent with the theory that privately-controlled firms use leverage strategically to shield themselves against regulatory opportunism.
    Keywords: Regulated Utilities, Regulatory Agencies, Capital Structure, Leverage, Investment, Private and State Ownership
    JEL: L51 G31 G32 L33
    Date: 2007–10
  4. By: Pollitt, M.; Bialek, J.
    Abstract: The requirement for significantly higher electricity network investment in the UK seems certain as the capacity of distributed generation and large scale renewables increases on the system. In this paper, which forms a chapter in the forthcoming Book “Delivering a Low Carbon Electricity System: Technologies, Economics and Policy”2, the authors make a number of significant suggestions for improvement to the current system of network regulation. First, they suggest that the RPI-X system needs to be overhauled in favour of a simpler yardstick based system and which allows for more merchant transmission investments. Second, future regulation should involve more negotiated regulation involving agreements between network owners and purchasers of network services. This would be particularly advantageous for decisions on new network investments. Third, more extensive use needs to be made of locational pricing within the transmission and distribution system in order to facilitate the least cost expansion of low carbon generation, including micropower. Fourth, consideration needs to be given to ownership unbundling of distribution networks from retail supply. This would better facilitate the entry of distributed generation and the development of appropriate competition between grid and off-grid generation supply and demand side management. Finally, there needs to be a significant increase in R&D expenditure in electricity networks supported by customer levies. Key words: Electricity networks, incentive regulation.
    JEL: L94
    Date: 2007–09
  5. By: Daron Acemoglu; Davide Ticchi; Andrea Vindigni
    Abstract: Inefficiencies in the bureaucratic organization of the state are often viewed as important factors in retarding economic development. Why certain societies choose or end up with such inefficient organizations has received very little attention, however. In this paper, we present a simple theory of the emergence and persistence of inefficient states based on patronage politics. The society consists of rich and poor individuals. The rich are initially in power, but expect to transition to democracy, which will choose redistributive policies. Taxation requires the employment of bureaucrats. We show that, under certain circumstances, by choosing an inefficient state structure, the rich may be able to use patronage and capture democratic politics. This enables them to reduce the amount of redistribution and public good provision in democracy. Moreover, the inefficient state creates its own constituency and tends to persist over time. Intuitively, an inefficient state structure creates more rents for bureaucrats than would an efficient state structure. When the poor come to power in democracy, they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats. Anticipating this, when the society starts out with an inefficient organization of the state, bureaucrats support the rich, who set lower taxes but also provide rents to bureaucrats. We show that in order to generate enough political support, the coalition of the rich and the bureaucrats may not only choose an inefficient organization of the state, but they may expand the size of bureaucracy “excessively” so as to gain additional votes. The model shows that an equilibrium with an inefficient state is more likely to arise when there is greater inequality between the rich and the poor, when bureaucratic rents take intermediate values and when individuals are sufficiently forward-looking.
    Keywords: bureaucracy, corruption, democracy, patronage politics, political economy, public goods, redistributive politics.
    JEL: P16 H11 H26 H41
    Date: 2007
  6. By: Paul A.Grout; Ian Jewitt; Silvia Sonderegger
    Abstract: This paper discusses proposed governance reforms of legal services markets. The model distinguishes between a status quo position supported by a system of professionally enforced collective reputation and forms of governance based more squarely on market mechanisms. We identify a number of forces which determine the success of reform. Focussing particularly on the rent recapture and relationship substitution effects, we highlight their impact on client welfare and quality of legal services in different types of market according to whether clients are transient or repeated users of the service.
    Keywords: incomplete contracts, repeated interactions
    JEL: D02 D78 D86
    Date: 2007–03
  7. By: Jaffe, Gregory
    Abstract: "This paper analyzes the current and proposed biosafety systems in Kenya, Tanzania, and Uganda using a set of components and characteristics common to functional and protective biosafety regulatory systems. It also assesses how those systems take into account the major international legal obligations that relate to biosafety, such the Cartagena Biosafety Protocol. The paper identifies certain areas in each country's biosafety regulatory systems where further development and clarification would improve the biosafety system, making it more functional and protective. Those areas include: (1) the addition of procedures to ensure the food safety of genetically engineered organisms; (2) the inclusion of the standard and criteria for making an approval decision; (3) the differentiation of regulatory procedures based on the relative risk of the organism; and (4) an explanation of how socio-economic considerations will be defined and assessed. Finally, the paper discusses possible ways the three countries can coordinate and harmonize their national biosafety regulatory systems so they are efficient, effective and make the best use of limited scientific and legal capacity." Author's Abstract
    Keywords: Biosafety, Food safety, Genetically modified organisms, Genetic engineering,
    Date: 2006
  8. By: Carmen Pages (Inter-American Development Bank); Reyes Aterido (World Bank); Mary Hallward-Driemeier (World Bank)
    Abstract: Using firm level data on 70,000 enterprises in 107 countries, this paper finds important effects of access to finance, business regulations, corruption, and to a lesser extent, infrastructure bottlenecks in explaining patterns of job creation at the firm level. The paper focuses on how the impact of the investment climate varies across sizes of firms. The differences across size categories come from two sources. First, objective conditions of the business environment do vary systematically by firm types. Micro and small firms have less access to formal finance, pay more in bribes than do larger firms, and face greater interruptions in infrastructure services. Larger firms spend significantly more time dealing with officials and red tape. Second, even controlling for these differences in objective conditions, there is evidence of significant non-linearities in their impact on employment growth. The results suggest strong composition effects: A weak business environment shifts downward the size distribution of firms. In the case of finance and business regulations this occurs by reducing the employment growth of all firms, particularly micro and small firms. On the other hand, corruption and poor access to infrastructure reduce employment growth by affecting the growth of medium size and large firms. With significant differences between firms with less than 10 employees and SMEs, these results indicate significant reforms are needed to spur micro firms to grow into the ranks of the SMEs.
    Date: 2007–10
  9. By: Antonio Rodriguez (Universidad Católica del Norte, Chile); Carlyn Ramlogan (University of Otago, New Zealand)
    Abstract: This paper presents some new evidence on income inequality in Latin America over the period 1980-1999, examining in particular the relationship between corruption, privatisation and inequality. Using a panel data methodology, we find that a reduction in corruption is associated with a rise in inequality. This suggests that while privatisation removes industries from government influence and government corruption, it worsens income inequality as new owners strive for efficiency and profits. The paper highlights the fact that structural reform policies aimed primarily at achieving positive and increasing growth rates do not adequately address the income distribution problem.
    Keywords: Población, income inequality, corruption, privatisation, panel data, Latin America, instrumental variables.
    JEL: O15 O54
    Date: 2007–11
  10. By: Linacre, Nicholas; Falck-Zepeda, José; Komen, John; MacLaren, Donald
    Abstract: "Compared to both Canada and the United States, Australia has been slow to approve commercial planting of transgenic crops. Two probable reasons exist for the slow approval rate of transgenic crops in Australia. The first reason is community perceptions about the risks associated with transgenic technologies. The second is the regulatory framework currently employed to approve commercial releases. This paper examines some of the potential regulatory issues that may be affecting the review process and approval of transgenic technologies. First we provide a brief introduction to the regulatory structure in Australia, second we consider the impact of regional, national and state jurisdictions, third we argue that the regulator needs to consider the use of benefits analysis in decision making, fourth we argue for the use of probabilistic risk assessments in certain circumstances, and fifth we look at potential problems inherent in majority voting in a committee and recommend alternatives." Authors' Abstract
    Keywords: Risk assessment,
    Date: 2006
  11. By: Robert Stavins; Judson Jaffe; Todd Schatzki
    Abstract: California's Global Warming Solutions Act of 2006 limits California's greenhouse gas (GHG) emissions in 2020 to their 1990 level. Global climate change is a pressing environmental problem, and the best possible public policies will be required to address it. Therefore, analyses of prospective policies must themselves be of high quality, so that policymakers can reasonably rely on them when making the critical decisions they inevitably will face. <br><br>In 2006, three studies were released indicating that California can meet its 2020 target at no net economic cost - raising questions about whether opportunities truly exist to substantially reduce emissions at no cost, or whether studies reaching such conclusions may simply severely underestimate costs. This paper provides an evaluation of these three California studies.<br><br>We find that although opportunities may exist for some no-cost emission reductions, these California studies substantially underestimate the cost of meeting California's 2020 target. The studies underestimate costs by omitting important components of the costs of emission reduction efforts, and by overestimating offsetting savings that some of those efforts yield through improved energy efficiency. In some cases, the studies focus on the costs of particular actions to reduce emissions, but fail to consider the effectiveness and costs of policies that would be necessary to bring about such actions. While quantifying the full extent of the resulting cost underestimation is beyond the scope of our study, the underestimation is clearly economically significant. A few of the identified flaws individually lead to underestimation of annual costs on the order of billions of dollars. Hence, these studies do not offer reliable estimates of the cost of meeting California's 2020 target. Better analyses are needed to inform policymakers.<br><br>While the Global Warming Solutions Act of 2006 sets a 2020 emissions target, critical policy design decisions remain to be made that will fundamentally affect the cost of California's climate policy. For example, policymakers must determine emission targets for the years before and after 2020, the emission sources that will be regulated to meet those targets, and the policy instruments that will be employed. The California studies do not directly address the cost implications of these and other policy design decisions, and their overly optimistic findings may leave policymakers with an inadequate appreciation of the stakes associated with decisions that lie ahead. As such, California would benefit from studies that specifically assess the cost implications of alternative policy designs.<br><br>Nonetheless, a careful evaluation of the California studies highlights some important policy design lessons that apply regardless of the extent to which no-cost emission reduction opportunities actually exist. In particular, policies should be designed to account for uncertainty regarding emission reduction costs, much of which will not be resolved before policies must be enacted. Also, consideration of the different market failures that lead to excessive GHG emissions makes clear that to reduce emissions cost-effectively, policymakers should adopt a market-based policy (such as a cap-and-trade system) as the core policy instrument. The presence of specific market failures that may lead to some no-cost emission reduction opportunities suggests the potential value of additional policies that act as complements, rather than alternatives, to a market-based policy. However, to develop complementary policies that efficiently target such no-cost opportunities, policymakers need better information than currently exists regarding the specific market failures that bring about those opportunities.
    JEL: Q28 Q38 Q48 Q54 Q58
    Date: 2007–11

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.
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