nep-reg New Economics Papers
on Regulation
Issue of 2008‒03‒01
nine papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Relative and individual regulation: An investigation of investment incentives under a cost-plus approach By Ebel, Nikos; Lefouili, Yassine
  2. Consistent Quantitative Operational Risk Measurement and Regulation: Challenges of Model Specification, Data Collection, and Loss Reporting By Andreas Jobst
  3. Opportunities and Challenges for the 20th Anniversary of the Montréal Protocol By Catherine Norman; STEPHEN DECANIO; Lin Fan
  4. Is Corruption an Efficient Grease ? By Pierre-Guillaume Méon; Laurent Weill
  5. The Efficiency Gains from Fully Delineating Rights in an ITQ Fishery By Christopher Costello; Robert Deacon
  6. What Drives the Arrangement Timetable of Bank Loan Syndication ? By Christophe J. Godlewski
  7. Exiting a lawless state By Stiglitz, Joseph E.; Hoff, Karla
  8. Enforcement Aspects of Conservation Policies: Compensation Payments versus Reserves By Rousseau Sandra
  9. Learning about compliance under asymmetric information By Rousseau Sandra; Arguedasa Carmen

  1. By: Ebel, Nikos; Lefouili, Yassine
    Abstract: We analyze the effects of a modified Yardstick competition on firms’ cost-reduction efforts. Departing from the existing literature, we use a relative cost-plus approach: firms are regulated on the basis of other firms’ performances, but they are granted a mark-up and not a lump-sum transfer in order to be compensated for their investments. We show that the cost-reduction effort of a regulated firm is decreasing in the mark-up under relative regulation while it is increasing in the mark-up under individual regulation. Hence, the trade-off between encouraging cost reduction and minimizing prices that the regulator faces under individual cost-plus regulation does not exist under relative cost-plus regulation. We extend our model by including technical spillovers and we investigate their effects on firms’ cost reduction efforts and on the efficiency of the whole industry. Finally, we allow for quality-enhancing investments and study the interplay between them and cost reduction investments under relative cost-plus regulation.
    Keywords: Yardstick Competition; Cost Reduction; Cost-Plus Regulation.
    JEL: L90 L50 D49
    Date: 2008–02
  2. By: Andreas Jobst
    Abstract: Amid increased size and complexity of the banking industry, operational risk has a greater potential to transpire in more harmful ways than many other sources of risk. This paper provides a succinct overview of the current regulatory framework of operational risk under the New Basel Capital Accord with a view to inform a critical debate about the influence of varying loss profiles and different methods of data collection, loss reporting, and model specification on the reliability of operational risk estimates and the consistency of risk-sensitive capital rules. The presented findings offer guidance on enhanced market practice and more effective prudential standards for operational risk measurement.
    Keywords: Risk management , Bank regulations , Globalization , Banking systems ,
    Date: 2007–11–05
  3. By: Catherine Norman (Johns Hopkins University); STEPHEN DECANIO (University of California, Santa Barbara); Lin Fan (Johns Hopkins University)
    Abstract: This paper considers the success of the Montreal Protocol on Substances that deplete the Ozone Layer in addressing an incompletely understood global environmental hazard under risk and uncertainty, and its implications for and interactions with other global environmental protection regimes, particularly the Kyoto Protocol. We illustrate a method for assessing joint impacts of projects and policies designed to reduce environmental damage in the absence of a coordinated legal and regulatory framework. Further, we note areas for improvements in coordination and efficiency across the treaties.
    Keywords: Global environmental protection, emissions trading markets, Montreal Protocol, Kyoto Protocol, abatement costs, ozone, climate,
    Date: 2007–09–01
  4. By: Pierre-Guillaume Méon; Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)
    Abstract: This paper tests whether corruption can be viewed as an efficient grease in the wheels of an otherwise deficient institutional framework. It does so by analyzing the interaction between aggregate efficiency, corruption, and other dimensions of governance for a panel of 54 countries both developed and developing. Using three measures of corruption and five measures of other aspects of governance, we repeatedly observe that corruption is always detrimental in countries where institutions are effective, but that it may be positively associated with efficiency in countries where institutions are ineffective. We thus find evidence of the grease the wheels hypothesis.
    Keywords: Governance, corruption, income, aggregate productivity, efficiency.
    JEL: C33 K4 O43 O47
    Date: 2008
  5. By: Christopher Costello (University of California, Santa Barbara); Robert Deacon (University of California, Santa Barbara)
    Abstract: ITQ regulation relies on a decentralized market mechanism and a single price to allocate access to a stock of fish. The resulting allocation will not be fully efficient if the stock being allocated is heterogeneous or if there are potential gains from centralized coordination of harvesting effort. If stocks are heterogeneous in their density, location, or unit value during the season, harvesters governed by an ITQ policy will not be indifferent to when or where they exercise their quotas. Stocks that are relatively dense and/or close to port will be preferred to those less dense or more remote. Because an ITQ policy assigns the same opportunity cost of each unit harvested, individual harvesters have an incentive to compete for higher valued units and such competition may dissipate part of the fishery's potential rent. A similar phenomenon arises when stock densities vary in an unknown way over space or time, so harvesters must engage in costly search. Individual harvesters governed by an ITQ policy have no incentive to share information on stock locations, which can lead to redundant search effort. We demonstrate that both sources of inefficiency can be eliminated either by defining ITQ rights more precisely or by an agreement among harvesters to coordinate their effort. We develop models that illustrate these effects and identify the factors that determine their likely size. Anecdotal evidence on practices adopted by fishery cooperatives is presented to illustrate the practical relevance of the issues we raise.
    Keywords: fisheries management, property rights, rent dissipation,
    Date: 2007–08–01
  6. By: Christophe J. Godlewski (Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur)
    Abstract: We investigate the influence of loan and syndicate characteristics and information disclosure and legal environment factors on the arrangement timetable of bank loan syndications (measured as the time elapsed from the launching until the completion of the deal) from 68 countries over the 1992-2006 period. Employing accelerated failure time models from survival analysis methodology, we find that loan, syndicate, legal environment and information disclosure characteristics which reduce agency problems related to syndication reduce the arrangement timetable. Among the country level characteristics, information disclosure which reduces moral hazard due to informational frictions between syndicate members appears to be the most important driver of a faster deal arrangement timetable, while better creditor rights protection increase the arrangement timetable, consistently with recontracting risk issues.
    Keywords: Syndicated loans arrangement timetable, Agency problems, Information disclosure, Legal risk, Survival analysis, Accelerated failure time models.
    JEL: G21 C41
    Date: 2008
  7. By: Stiglitz, Joseph E.; Hoff, Karla
    Abstract: An earlier paper showed that an economy could be trapped in an equilibrium state in which the absence of the rule of law led to asset-stripping, and the prevalence of asset-stripping led to the absence of a demand for the rule of law, highlighting a coordination failure. This paper looks more carefully at the dynamics of transition from a non-rule-of-law state. The paper identifies a commitment problem as the critical feature inhibiting the transition: the inability, under a rule of law, to forgive theft. This can lead to the perpetuation of the non-rule-of-law state, even when it might seem that the alternative is Pareto-improving.
    Keywords: Public Sector Corruption & Anticorruption Measures,National Governance,Labor Policies,Gender and Law,Economic Theory & Research
    Date: 2008–02–01
  8. By: Rousseau Sandra (K.U.Leuven-Center for Economic Studies)
    Abstract: This model explicitly incorporates the dynamic aspects of conservation programs with incomplete compliance and it allows landholders’ behavior to change over time. A distinction is made between initial and continuing compliance. We find that incomplete and instrument-specific enforcement can have a significant impact on the choice between subsidy schemes and reserves for conservation policies. The results suggest that it is useless to design a conservation scheme for landholders, if the regulator is not prepared to explicitly back the program with a monitoring and enforcement policy. In general, the regulator will prefer to use compensation payments, if the cost of using government revenues is sufficiently low, the environmental benefits are equal, and the cost efficiency benefits exceed the (possible) increase in inspection costs. If the use of government funds is too costly, the reserve-type instruments will be socially beneficial.
    Keywords: Monitoring and enforcement; Policy instruments; Conservation policy
    Date: 2008–02
  9. By: Rousseau Sandra (K.U.Leuven-Center for Economic Studies); Arguedasa Carmen (Departamento de Análisis Económico: Teoría Económica e Historia Económica, Universidad Autónoma de Madrid)
    Abstract: TOver time, inspection agencies gather information about firms that cause harmful externalities. This information may allow agencies to differentiate their monitoring strategies in the future, since inspections can be influenced by firms’ past performance relative to other competitors in the market. If a firm is less successful than its peers in reducing the externality, it faces the risk of being targeted for increased inspections in the next period. This risk of stricter monitoring might induce high cost firms to mimic low cost firms, while the latter might try to avoid being mimicked. We show that under certain circumstances, mimicking, or even the threat of mimicking, might reduce socially harmful activities and thus be welfare improving.
    Keywords: Monitoring and enforcement; externalities; learning; mimicking
    JEL: D82 H83 K42
    Date: 2008–02

This nep-reg issue is ©2008 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.