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on Regulation |
| By: | Gropp, Reint Eberhard; Heider, Florian |
| Abstract: | This paper documents that standard cross-sectional determinants of firm leverage also apply to the capital structure of large banks in the United States and Europe. We find a remarkable consistency in sign, significance and economic magnitude. Like non-financial firms, banks appear to have stable capital structures at levels that are specific to each individual bank. The results suggest that capital requirements may only be of second-order importance for banks’ capital structures and confirm the robustness of current corporate finance findings in a holdout sample of banks. |
| Keywords: | capital structure, corporate finance, leverage, bank capital, banking regulation |
| JEL: | G21 G32 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7224&r=reg |
| By: | Barros, Pedro Pita |
| Abstract: | The Janssen-Cilag proposal for a risk-sharing agreement regarding bortezomib received a welcome signal from NICE. The Office of Fair Trading report included risk-sharing agreements as an available tool for the National Health Service. Nonetheless, recent discussions have somewhat neglected the economic fundamentals underlying risk-sharing agreements. We argue here that risk-sharing agreements, although attractive due to the principle of paying by results, also entail risks. Too many patients may be put under treatment even with a low success probability. Prices are likely to be adjusted upward, in anticipation of future risk-sharing agreements between the pharmaceutical company and the third-party payer. An available instrument is a verification cost per patient treated, which allows obtaining the first-best allocation of patients to the new treatment, under the risk sharing agreement. Overall, the welfare effects of risk-sharing agreements are ambiguous, and care must be taken with their use. |
| Keywords: | risk sharing agreements; pharmaceutical prices |
| JEL: | I11 I18 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8517&r=reg |
| By: | Stephen Haber (Stanford University); Enrico Perotti (University of Amsterdam) |
| Abstract: | This survey reviews the literature on the political economy of financial structure, broadly defined to include the size of capital markets and banking systems as well as the distribution of access to external finance across firms. The theoretical literature on the institutional basis for financial development and the recent evidence suggests that unconstrained political power undermines financial accumulation. Even under limited government, unaccountable institutions lead to regulatory capture, favor connected interests, and undermine finance access and entry. Thus the degree of access to political rights by citizens thus strongly affects their access to finance. Finally, we review the recent literature on the time variation of financial development across democracies during the XX century. |
| Keywords: | political institution; property rights; investor protection; financial development; access to finance; entry; banking |
| JEL: | G21 G28 G32 P16 |
| Date: | 2008–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20080045&r=reg |
| By: | Di Novi, Cinzia |
| Abstract: | This paper presents a survey of methods of regulations with focus on pollution abatement and of various approaches to the issue of measuring quantities such as the marginal benefit of improved health that are crucial in view of implementing the regulation. Since pollution is a public bad, in general the efficient level of pollution can only be reached by way of some sort of public intervention. The paper's focus is on so-called marketbased mechanisms, which in turn are classified into price-based mechanisms (pollution taxes) and quantity-based mechanisms (tradeable permits). The basic framework for addressing the comparison between the two types of mechanisms is Weitzman (1974). In order to actually choose between regulation methods and to eventually implement chosen methods, estimates are needed of some crucial quantities, in particular of marginal costs and benefits of pollution abatement. The most problematic one is of course marginal benefit. Therefore the paper considers various approaches to the measurement of marginal benefits. |
| Keywords: | marginal costs, marginal benefits, pollution regulation, health |
| JEL: | Q51 I18 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:uca:ucapdv:104&r=reg |
| By: | Heuchemer Sylvia; Kleimeier Stefanie; Sander Harald (METEOR) |
| Abstract: | We investigate the determinants of European banking market integration with a focus on the potentially limiting role of cultural and political factors. Employing a unique data set of European cross-border loans and deposits, the study uses various gravity models that are augmented by societal proxies. While trade-theoretic reasoning can explain part of the surge in cross-border banking, we demonstrate that distance and borders still matter in the geography of European cross-border banking. Moreover, we can identify cultural differences and different legal family origin as important barriers to integration. |
| Keywords: | Economics (Jel: A) |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2008008&r=reg |
| By: | Vijaya Ramachandran; Manju Kedia Shah; Gaiv Tata |
| Abstract: | Prior research has emphasized that the high costs and risks arising from a poor investment climate—lack of clear property rights, macro-instability, the burden of regulation and taxation, poor infrastructure, lack of finance, and lack of human capital—have impeded the development of the private sector in sub-Saharan Africa, despite adoption of structural adjustment and liberalization policies. Given the resulting wide differentials in productivity, it is not surprising that most of the African manufacturing sector has not been competitive in exports. However, trade liberalization should have had greater impact on domestic markets for manufactured goods in Africa, leading to either a rapid decline in the size of the manufacturing sector due to import competition, or to a rapid increase in productivity of surviving enterprises. In fact, neither has happened to any significant degree over the last 20 years. Based on data from enterprise surveys conducted by the Regional Program for Enterprise Development at the World Bank, this paper argues that some African manufacturing enterprises have continued to retain their market leadership in domestic markets by investing in relationships with governments, thereby maintaining high barriers to entry and a reduced degree of competition. This influence is particularly severe in some countries in Africa and is often driven by relatively few enterprises. In particular, Zambia and Kenya seem to suffer a high degree of influence-peddling, while Mali and Senegal are at the low end of the scale. Comparisons with selected countries in Asia show that lobbying in East Africa is different than in Asia—larger enterprises, and enterprises with higher market share lobby in Africa, as compared to Asia where market share is not a significant determinant of lobbying activity. The results imply that attempts to improve the productivity of the African private sector through focusing only on the removal of trade barriers, improvements in the investment climate, and private sector capacity building will at most be partially successful. In order to escape from the current low-level equilibrium trap, future reforms will need to explicitly consider political economy issues. From this perspective, the role of regional integration as a tool of competition policy will need to be given greater consideration. |
| Keywords: | Africa, economic reform, influence-peddling |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:127&r=reg |
| By: | Michiel van Leuvensteijn (CPB Netherlands Bureau for Economic Policy Analysis, P.O. Box 80510, 2508 GM The Hague, The Netherlands.); Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jacob A. Bikker (De Nederlandsche Bank (DNB), Supervisory Policy Division, Strategy Department, P.O. Box 98, 1000 AB Amsterdam, The Netherlands.); Adrian A.R.J.M. van Rixtel (Banco de España, International Economics and International Relations Department, Alcalá 48, 28014 Madrid, Spain.) |
| Abstract: | This paper analyses the impact of loan market competition on the interest rates applied by euro area banks to loans and deposits during the 1994-2004 period, using a novel measure of competition called the Boone indicator. We find evidence that stronger competition implies significantly lower spreads between bank and market interest rates for most loan market products. Using an error correction model(ECM) approach to measure the effect of competition on the pass-through of market rates to bank interest rates, we likewise find that banks tend to price their loans more in accordance with the market in countries where competitive pressures are stronger. Further, where loan market competition is stronger, we observe larger bank spreads (implying lower bank interest rates) on current account and time deposits. This would suggest that the competitive pressure is heavier in the loan market than in the deposit markets, so that banks compensate for their reduction in loan market income by lowering their deposit rates. We observe also that bank interest rates in more competitive markets respond more strongly to changes in market interest rates. These findings have important monetary policy implications, as they suggest that measures to enhance competition in the European banking sector will tend to render the monetary policy transmission mechanism more effective. JEL Classification: D4, E50, G21, L10. |
| Keywords: | Monetary transmission, banks, retail rates, competition, panel data. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080885&r=reg |
| By: | Azomahou, Théophile (UNU-MERIT); Boucekkine, Raouf (CORE, Universite Catholique de Louvain); Nguyen-Van, Phu (CNRS, Université de Cergy-Pontoise,) |
| Abstract: | We develop a general equilibrium vintage capital model with embodied energy-saving technological progress and an explicit energy market to study the impact of investment subsidies on investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy consuming and scrapping is endogenous. It is shown that the impact of investment subsidies heavily depends on the structure of the energy market, the mechanism explaining this outcome relying on the tight relationship between the lifetime of capital goods and energy prices via the scrapping conditions inherent to vintage models. In particular, under a free entry structure for the energy sector, investment subsidies boost investment, while the opposite result emerges under natural monopoly if increasing returns in the energy sector are not strong enough. |
| Keywords: | Energy-saving, Technological change, Vintage capital, Energy market, Natural monopoly, Investment subsidies |
| JEL: | E22 O40 Q40 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2008032&r=reg |
| By: | Brambila Macias, Jose |
| Abstract: | This paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). Our results indicate that the Mexican informal sector at the beginning of the 1970’s initially accounted for 40 percent of GDP while slightly decreasing to stabilize around 30percent of GDP in the late 1980’s until our days. The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. The results confirm in particular the importance of salaries and excessive regulation as causes of the informal economy in Mexico and confirm a positive relation between informality and GDP. |
| Keywords: | Informal Economy; Economic Growth; Structural Equations |
| JEL: | C39 O17 E26 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8504&r=reg |