nep-reg New Economics Papers
on Regulation
Issue of 2008‒05‒24
five papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Regulatory design under asymmetric information about demand By Paula Sarmento; António Brandão
  2. Environmental Regulation as a Coordination Device for the Introduction of a Green Product: The Porter’s Hypothesis Revisited By Philippe Barla; Christos Constantatos; Markus Herrmann
  3. A short analysis on the stricter European regulations on tropical hardwood imports and their side effects By Jean-Marc Roda; Eric J.M.M. Aretz; Hin Fui Lim
  4. Excessive entry in a bilateral oligopoly By Arijit Mukherjee
  5. ‘Automatic’ cycle-stabilising capital requirements: what can be achieved? By Tim Ng

  1. By: Paula Sarmento (CETE and Faculty of Economics, University of Porto); António Brandão (CETE and Faculty of Economics, University of Porto)
    Abstract: In this paper we compare the costs of two regulatory policies about the entry of new firms. We consider an incumbent firm that has more information about the market demand than the regulator. Then, the incumbent firm can use this advantage to persuade the regulator to make entry more difficult. With the first regulatory policy the regulator uses the incumbent price pre-regulation to get information about the demand. With the second regulatory policy the regulator design a mechanism to motivate the incumbent firm to price truthfully. We conclude that, for enough high values of the probability of low demand, the welfare is higher with the second (more active) regulatory policy.
    Keywords: asymmetric information, entry regulation, signalling, adverse selection
    JEL: C73 D82 L13 L51
    Date: 2008–05
  2. By: Philippe Barla (Department of Economics, Universite Laval); Christos Constantatos (Department of Economics, University of Macedonia); Markus Herrmann (Department of Economics, Universite Laval)
    Abstract: According to Porter’s hypothesis, environmental regulation increases the regulated firms’ profits. However, if a “greener” strategy is more profitable why does it need regulatory intervention in order to be implemented? Let a greener product increase the adopter’s marginal cost while providing no additional benefits during the first period. In the second period, when the product's environmental attributes become known and appreciated by consumers, the adopter enjoys higher demand. By adopting the green product alone, a firm loses profits in the first period due to a) its increased costs, and b) its reduced market share; in the second period, it enjoys additional profits due to c) its increased quality, and d) its increased market share. If both firms adopt the green product market shares remain unaffected, therefore b) and d) disappear. While simultaneously adopting the green product can be profitable for both firms, for a single firm to pioneer adoption may not be so. Environmental regulation acts, therefore, as a co-ordination device reducing market inertia. By inducing both firms to act simultaneously it allows them to pass from one Nash equilibrium to another one with higher profits.
    Keywords: Porter’s hypothesis, environmental regulation, differentiated products, coordination
    JEL: Q20 Q28 L13 L50
    Date: 2008–05
  3. By: Jean-Marc Roda (CIRAD); Eric J.M.M. Aretz (Alterra); Hin Fui Lim (FRIM)
    Abstract: This paper analyses the side effects of the stricter regulation on tropical hardwood or timber imports. It considers the place of Europe within the global timber market, where Europe accounts only for a very limited share. It also explains the high selectivity of European markets, with its consequences. While tropical wooden furniture and other secondary processed products are not considered as timber here, their question is also discussed. The number of empirical studies specifically dealing with the side effects of EU regulations is limited, but the results are converging, showing that these regulations have a general adverse effect, contrary to the initial aim of promoting the sustainability of tropical timbers. These side effects are essentially to divert the trade towards countries with lower standards, and to add a burden on most of the producing countries which have already a set of comparative disadvantages for the production of legal or sustainable timber. The effects are positive on a limited number of companies which markets are very dependent of Europe. The question is then analysed from a broader perspective, replacing the effects of the EU regulations as an incidental factor compared to the increasing consumption of tropical timber by the three developing giants: Brazil, India and China.
    Keywords: timber trade, trade regulation, environmental regulation, Europe, tropical timber, tropical hardwwod, side effect, adverse effect
    JEL: L73 O13
    Date: 2007–03
  4. By: Arijit Mukherjee
    Abstract: In a bilateral oligopoly, Ghosh and Morita (‘Social desirability of free entry: a bilateral oligopoly analysis, 2007, IJIO) show that entry is always socially insufficient if the upstream agents have sufficiently strong bargaining power. We show that this conclusion is very much dependent on the use of “efficient bargaining” model in their analysis. Using a “right-to-manage” model, we show that, even if the upstream agents have full bargaining power, entry is excessive in a bilateral oligopoly if the cost of entry is not very high. Hence, whether the anti-competitive entry regulation is justified under bilateral oligopoly depends on the bargaining structure between the upstream and the downstream agents.
    Keywords: Bilateral oligopoly; Excessive entry; Free entry; Insufficient entry
  5. By: Tim Ng (Reserve Bank of New Zealand)
    Abstract: This paper discusses the potential for lenders’ capital requirements to be used as ‘automatic stabilisers’ of the business cycle in New Zealand. The procyclicality of lending, and its importance for cyclical developments, motivates the consideration of regulation of lending for cycle-stabilisation purposes. This application of lenders’ capital requirements is distinct from, but complements, the prudential reasons for capital adequacy requirements. I set out a putative capital requirement on housing lending intended to have cycle-stabilising properties. I explore the likely degree of cycle stabilisation that could be expected from feasible calibrations of such a requirement. I conclude that the putative cycle-stabilising capital requirement might have some impact on the cycle at the margin, and that this impact is most likely on the downside of cycles. However, the highlydeveloped and open nature of New Zealand’s housing lending markets is likely to limit the degree of cycle stabilisation that can be achieved with this approach.
    JEL: E58 E59
    Date: 2008–02

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