nep-reg New Economics Papers
on Regulation
Issue of 2008‒05‒31
23 papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Regulation of NGN: Structural Separation, Access Regulation, or No Regulation at All? By Kirsch, Fabian; Von Hirschhausen, Christian
  2. European Railway Deregulation: The Influence of Regulatory and Environmental Conditions on Efficiency By Heike Wetzel
  3. Sales Growth of New Pharmaceuticals Across the Globe: The Role of Regulatory Regimes By Stremersch, S.; Lemmens, A.
  4. The Economics of Next Generation Access Networks and Regulatory Governance: Towards Geographic Patterns of Regulation By Amendola, Giovanni Battista; Pupillo, Lorenzo Maria
  5. Regulatory Approaches to NGNs: An International Comparison By Marcus, J. Scott; Elixmann, Dieter
  6. Multimarket Contact in Pharmaceutical Markets By Javier Coronado; Sergi Jiménez Martín; Pedro L. Marín
  7. Regulatory Governance By Jonathan Westrup
  8. Product Market Deregulation and the U.S. Employment Miracle By Ebell, Monique; Haefke, Christian
  9. The Cost Effectiveness of Environmental Policy Instruments in the Presence of Imperfect Compliance By Sandra Rousseau; Stef Proost
  10. Is Google the next Microsoft? Competition, Welfare and Regulation in Internet Search By Pollock, Rufus
  11. Regulatory Institutions: A Blueprint for the Russian Federation By Donato de Rosa; Nick Malyshev
  12. Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints By Silvia Ardagna; Annamaria Lusardi
  13. Asymmetric Cartels - a Theory of Ring Leaders By Ganslandt, Mattias; Persson, Lars; Vasconcelos, Helder
  14. Growth, public investment and corruption with failing institutions By David De La Croix; Clara Delavallade
  15. Live or let die : intra-sectoral lobbying on entry By Vincent Rebeyrol; Julien Vauday
  16. NGA, IP-Interconnection and their Impact on Business Models and Competition By Reichl, Wolfgang; Ruhle, Ernst-Olav
  17. Corruption and Growth: Exploring the Investment Channel By Léonce Ndikumana; Mina Baliamoune-Lutz
  18. What Niklas Luhmann might have said of carbon trading By David Campbell; Matthias Klaes
  19. Downsizing as a sorting device. Are low-productive workers more likely to leave downsizing firms? By Morten Henningsen and Torbjørn Hægeland
  20. Sequential dominance and weighted utilitarianism By Erwin Ooghe
  21. Law and Systems for Intermediated Securities and the Relationship of Private Property Law to Securities Clearance and Settlement: United States, Japan, and the UNIDROIT Draft Convention By Charles W. Mooney, Jr.
  22. Carbon Motivated Border Tax Adjustments: Old Wine in Green Bottles? By Ben Lockwood; John Whalley
  23. The Determinants of Pricing in Pharmaceuticals: Are U.S. prices really so high? By Antonio Cabrales; Sergi Jiménez-Martín

  1. By: Kirsch, Fabian; Von Hirschhausen, Christian
    Abstract: Since the introduction of Next Generation Networks (NGNs) by telecommunication network operators, national regulators have begun to adapt their access regulation regimes to the new technological conditions. The regulatory reactions gravitate towards three distinct regulatory trajectories: unregulated competition, access regulation, and structural separation. We first analyze the extent of market power in access Networks in NGNs from a technological perspective. Second, we use case studies to identify patterns between technological and market conditions and regulators' reactions in selected countries. We find that market power in the access network is likely to prevail. Regulatory reactions differ with the extent of infrastructure competition and the regulators position in the trade-off between promoting investment and protecting competition.
    Keywords: Next Generation Network; deregulation; access regulation; structural separation.
    JEL: L51
    Date: 2008–03
  2. By: Heike Wetzel (Institute of Economics, Leuphana University of Lüneburg)
    Abstract: The objective of this paper is to analyze the impact of regulatory and environmental conditions on technical effciency of European railways. Using a panel data set of 31 railway firms from 22 European countries from 1994 to 2005, a multioutput distance function model, including regulatory and environmental factors, is estimated using stochastic frontier analysis. The results obtained indicate positive and negative effciency effects of different regulatory reforms. Furthermore, estimating models with and without regulatory and environmental factors clearly indicates that the omission of environmental factors, such as network density, substantially changes parameter estimates and, hence, leads to biased estimation results.
    Keywords: European railways, technical effciency, stochastic frontier analysis
    JEL: L92 L51 L22
    Date: 2008–05
  3. By: Stremersch, S.; Lemmens, A. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Prior marketing literature has overlooked the role of regulatory regimes in explaining international sales growth of new products. This paper addresses this gap in the context of new pharmaceuticals (15 new molecules in 34 countries) and sheds light on the effect regulatory regimes have on new drug sales across the globe. Based on a time-varying coefficient model, we find that differences in regulation substantially contribute to cross-country variation in sales. One of the regulatory constraints investigated, i.e. manufacturer price controls, has a positive effect on drug sales. The other forms of regulation such as restrictions of physician prescription budgets and the prohibition of direct-to-consumer advertising tend to hurt sales. The effect of manufacturer price controls is similar for newly launched and mature drugs. In contrast, regulations on physician prescription budget and direct-to-consumer advertising have a differential effect for newly launched and mature drugs. While the former hurts mature drugs more, the latter has a larger effect on newly launched drugs. In addition to these regulatory effects, we find that national culture, economic wealth, introduction timing, lagged sales and competition, also affect drug sales. Our findings may be used as input by managers for international launch and sales decisions. They may also be used by public policy administrators to compare drug sales in their country to other countries and to assess the role of regulatory regimes therein.
    Keywords: international new product growth;drug;pharmaceutical;regulation;culture;economics;timevarying effects;penalized splines
    Date: 2008–05–15
  4. By: Amendola, Giovanni Battista; Pupillo, Lorenzo Maria
    Abstract: This paper examines the mix of technical, regulatory, and business strategy issues that arise in implementing next generation broadband platforms in Europe. Our review of some European studies on NGAN in Europe and our specific focus on the Italian situation, in particular on the competitive situation in Milano, shows the relevant flaw of continuing to advocate national patterns of regulation. In fact, the deployment of NGAN calls for a radical shift of regulation on a geographic level. The recognition that a NGAN business case does exist for OLO in a number of local areas, mainly metropolitan ones, has relevant regulatory implications.In the first place, since the conditions of competition differ significantly among local areas, regulation should promote both incumbents' and OLO's investments in NGAN by limiting ex ante interventions to those enduring economic bottlenecks found at a specific geographic markets level. In the second place, market definition is the most important step in the market analysis procedure to help decide whether to regulate a given service provided over a NGAN or not. We have proposed a taxonomy of local areas that may be adopted in a country like Italy for a correct geographic definition of markets 4 and 5 and, as a consequence, for the imposition of appropriate remedies.
    Keywords: Next Generation Networks; geographic markets; geographic remedies; infrastructure sharing; market definition.
    JEL: L10
    Date: 2008–03
  5. By: Marcus, J. Scott; Elixmann, Dieter
    Abstract: The emergence of Next Generation Networks (NGNs) raises profound challenges for regulators everywhere. Different regulatory authorities have approached these problems in strikingly different ways, depending in part on the overall regulatory milieu in which they operate, and in part on the nature of the NGN migration envisioned by major market players. Also, the NGN core network raises significantly different issues from those of the NGN access network. The migration to NGN raises many of the same issues that were already on the table as a result of the broader migration to IP-based services, notably in regard to the de-coupling of the service from the underlying network. To these concerns are added profound questions related to the nature of market power. Will NGNs enable new forms of competition? Will competitive bottlenecks remain, especially in the last mile? Will NGN enable new forms of bottlenecks to emerge, especially in the upper layers of the network, perhaps as a result of new IMS capabilities? Regulators in the UK, Netherlands, Germany, Japan and the United States have been forced to deal with these issues due to relatively rapid migration to NGNs proposed by their respective incumbent telecoms operators. Many of the same issues are also visible in the recommendations that the European Commission finalised on 13 November 2007 as part of the ongoing review of the European regulatory framework for electronic communications. In this paper, we compare and contrast the many regulatory proceedings that have been produced by these regulatory authorities.
    Keywords: Regulation; Next Generation Networks; access network; core network; all-IP; competition; market power; international comparison.
    JEL: L51 L10 L50
    Date: 2008–03
  6. By: Javier Coronado; Sergi Jiménez Martín; Pedro L. Marín
    Abstract: Multimarket rivalry theory predicts that firms engaged in price competition in several markets might find it optimal to redistribute market power from more collusive markets to more competitive instances. Price regulation is shown to affect this relation in a non-monotonic way. Mild or low price regulation may encourage further market power redistribution, whereas stronger price controls change the result to the point of making it irrelevant. We use data from the Pharmaceutical industry for nine OECD countries which are known to place different levels of price controls. We find evidence of the redistribution effect and the interaction with price regulations when considering contacts between chemically equivalent products; however, widening the contact dimension to consider interactions among substitute therapies make the result less transparent. We also find some evidence of the expected interaction between price controls and the redistribution effect driven by the multi-market structure of the industry.
    Date: 2008–05
  7. By: Jonathan Westrup (Research Fellow, TCD Institute for International Integration Studies)
    Date: 2007–11–12
  8. By: Ebell, Monique (Department of Economics and Business Studies, Humboldt University of Berlin, and Centre for Economic Performance, London School of Economics and Political Science); Haefke, Christian (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria, and Instituto de Análisis Económico, CSIC)
    Abstract: We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matching model with monopolistic competition in the goods market and individual bargaining. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980’s and 1990’s could be directly attributed to product market deregulation. Under a traditional calibration, our results suggest that a decrease of less than two-tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount. Under a small surplus calibration, however, product market deregulation can account for the entire decline in US trend unemployment over the 1980’s and 1990’s.;
    Keywords: Product market competition, barriers to entry, wage bargaining
    JEL: E24 J63 O00
    Date: 2008–05
  9. By: Sandra Rousseau; Stef Proost
    Abstract: We aim to integrate information, monitoring and enforcement costs into the choice of environmental policy instruments. We use a static partial equilibrium framework to study different combinations of regulatory instruments (taxes, standards…) and enforcement instruments (criminal fine, administrative fine…). The firms’ compliance decisions depend on the instrument combination selected by the government. The model is used to compare the welfare effects of different instrument combinations for the textile industry in Flanders. We find that administrative, implementation, enforcement and monitoring costs are important to decide on the necessity of an environmental policy. Moreover, we show that emission taxes are not necessarily the most cost-effective instrument. This result holds even if we include industry heterogeneity. The decision of whether to pursue an environmental policy or not depends crucially on the formulation of an appropriate monitoring and enforcement policy.
    Keywords: K32 Environmental Law, K42 Illegal behaviour and enforcement of law, Q28 Government policy
    Date: 2008–03
  10. By: Pollock, Rufus
    Abstract: Internet search (or perhaps more accurately `web-search') has grown exponentially over the last decade at an even more rapid rate than the Internet itself. Starting from nothing in the 1990s, today search is a multi-billion dollar business. Search engine providers such as Google and Yahoo! have become household names, and the use of a search engine, like use of the Web, is now a part of everyday life. The rapid growth of online search and its growing centrality to the ecology of the Internet raise a variety of questions for economists to answer. Why is the search engine market so concentrated and will it evolve towards monopoly? What are the implications of this concentration for different `participants' (consumers, search engines, advertisers)? Does the fact that search engines act as `information gatekeepers', determining, in effect, what can be found on the web, mean that search deserves particularly close attention from policy-makers? This paper supplies empirical and theoretical material with which to examine many of these questions. In particular, we (a) show that the already large levels of concentration are likely to continue (b) identify the consequences, negative and positive, of this outcome (c) discuss the possible regulatory interventions that policy-makers could utilize to address these.
    Keywords: Search Engine; Regulation; Competition; Antitrust; Technology
    JEL: L10 L50 L40
    Date: 2008–05
  11. By: Donato de Rosa; Nick Malyshev
    Abstract: The paper develops an architecture for regulatory institutions that could be feasible in the current Russian context. The paper examines two specific areas: first, establishing a regulatory oversight unit, located at the centre of government, responsible for the strategic co-ordination of regulatory reforms and oversight of regulatory quality; and second, redefining the mandates and strengthening the capacities of the competition authority and regulators of network industries. The paper draws on OECD experience and provides a number of lessons which could direct Russia’s future efforts in regulatory reform onto a track more similar to the one observed across the OECD.
    Date: 2008–05
  12. By: Silvia Ardagna; Annamaria Lusardi
    Abstract: We use a micro dataset that collects information across individuals, countries, and time to investigate the determinants of entrepreneurial activity in thirty-seven developed and developing nations. We focus both on individual characteristics and on countries' regulatory differences. We show that individual characteristics, such as gender, age, and status in the workforce are important determinants of entrepreneurship, and we also highlight the relevance of social networks, self-assessed skills, and attitudes toward risk. Moreover, we find that regulation plays a critical role, particularly for those individuals who become entrepreneurs to pursue a business opportunity. The individual characteristics that are impacted most by regulation are those measuring working status, social network, business skills, and attitudes toward risk
    JEL: M13
    Date: 2008–05
  13. By: Ganslandt, Mattias; Persson, Lars; Vasconcelos, Helder
    Abstract: Many convicted cartels have a leader which is substantially larger than its rivals. In a setting where firms face indivisible costs of collusion, we show that: (i) firms may have an incentive to merge so as to create asymmetric market structures since this enables the merged firm to cover the indivisible cost associated with cartel leadership; and (ii) forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with a higher risk of collusion. Thus, these results have implications for the practice of the current EU and US merger policies.
    Keywords: Cartels; Collusion; Cost Asymmetries; Merger Policy; Ring Leader
    JEL: D43 L41
    Date: 2008–05
  14. By: David De La Croix (CORE - Department of Economics - Université Catholique de Louvain); Clara Delavallade (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: Corruption is thought to prevent poor countries from catching up with richer ones. We analyze one channel through which corruption hampers growth : public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distorsion, we propose a dynamic model where households vote for the composition of public spending, subject to an incentive constraint reflecting individuals' choice between productive activity and rent-seeking. In equilibrium, the structure of public investment is determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption but the possibility of corruption still distorts the allocation of public investment. We test the implications of the model on a set of countries using a two-stage least squares estimation. We find that developing countries with high predatory technology invest more in housing and physical capital in comparison with health and education. The reverse is true for developed countries.
    Keywords: Public investment, optimal growth, corruption, political power.
    Date: 2008–05
  15. By: Vincent Rebeyrol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I); Julien Vauday (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I)
    Abstract: Since the GATT/WTO hinders tariffs manipulation, the Technical Barriers to Trade (TBT's) are a growing and appealing protection tool. The endogenous protection literature has shown that a government's taste for protection creates an incentive for lobbying. Since regulations at the origin of such barriers have to be borne also by domestic sectors, due to the National Treatment WTO's principle, this creates conflicts of interests within a sector enhancing an intra-sectoral competition. This paper develops a political economy framework based on common agency under complete information that highlights this issue. The political competition opposes productive versus non productive firms in this context rather than domestic versus foreign ones, contrasting with the literature. Some apparently unorganized sectors, i.e. that are not protected, may actually be sectors where lobbies are biased towards non productive firms. Therefore, we should be cautious when empirically studying the relationship between the levels of protection and contributions.
    Keywords: Endogenous protection, Truthful equilibrium, firm heterogeneity.
    Date: 2008–05
  16. By: Reichl, Wolfgang; Ruhle, Ernst-Olav
    Abstract: Developments towards Next Generation Networks (NGN) have a strong impact on the design of the markets for electronic communications in general, but specifically on intercarrier relations with respect to interconnection and access. Due to the fact that competition in the European telecommunications environment has brought about alternative providers and their business models it is an interesting area to investigate how these business models will develop in an NGN environment and which (additional) business models may emerge in the future. To that end, the current paper looks at the development of different business models in the PSTN world and likely developments in the NGN world. This leads to conclusions with respect to requirements of the future regulatory framework of next generation networks in order to maintain the achievements of competition in the telecommunications area.
    Keywords: NGN; business models; migration; competition; regulatory framework.
    JEL: L50
    Date: 2008–03
  17. By: Léonce Ndikumana (University of Massachusetts, Amherst, and UNECA, Addis Ababa); Mina Baliamoune-Lutz (University of North Florida)
    Abstract: This study investigates the impact of corruption on public and private investment in African countries as a way of exploring one channel through which corruption undermines growth. The empirical results indicate that corruption affects economic growth directly and through its impact on investment. We find that corruption has a negative and significant effect on domestic investment and that corruption affects public and private investment differently. The results indicate that corruption has a positive effect on public investment while it has a negative effect on private investment. The positive association between public investment and corruption supports the view that corrupt bureaucrats seek to increase capital expenditure (over maintenance expenditures) to maximize private gains (rent-seeking). In contrast, the results confirm that corruption discourages private investment, suggesting that corruption increases the costs of doing business while raising uncertainty over expected returns to capital. The results support the view that corruption hampers growth and call for institutional reforms to improve the quality of governance as a prerequisite for achieving investment-led growth. JEL Categories:
    Date: 2008–05
  18. By: David Campbell (University of Durham); Matthias Klaes (Keele University)
    Abstract: Ecological questions have proven particularly fruitful to illustrate Luhmann’s theory of society as an integrative perspective cutting across the scientific, economic, legal, and political domains. In this paper, we will discuss the development of carbon trading as a case study of how reflexive system rationality of the kind postulated by Luhmann becomes the defining characteristic of the spectacular failure of such trading as has taken place to date to even approximate any of it own stated goals. Paradoxically, regulatory attempts to provide for a market-based response to anthropogenic global warming have resulted in the emergence of carbon prices that are essentially planned at a level of ambition reminiscent of the twentieth century’s most extensive exercises in centralised command and control, due to structural couplings between the scientific, economic, political and legal systems and an ecology of organisations and institutions spread across them. As government-sponsored carbon trading is perhaps the most characteristic initiative of modern government, its discussion in Luhmann’s terms is significant for any evaluation of the relevance of his work.
    Keywords: globalisation, Luhmann, carbon trading, regulatory failure, Coase
    JEL: B41 B52 K0 Q5 Z1
    Date: 2008–06
  19. By: Morten Henningsen and Torbjørn Hægeland (Statistics Norway)
    Abstract: Employers cannot always displace workers at their own discretion. In many countries, Employment Protection Legislation (EPL) includes restrictions on laying off workers. This paper studies whether employers use downsizing events, where the rules for dismissal differ from the rules that apply for individual dismissal, to displace workers selectively. We investigate empirically whether workers with low expected productivity relative to co-workers face particularly high exit risks when establishments downsize. Our evidence is consistent with establishments using downsizings as a sorting device to terminate the employment of the least profitable workers who are protected against dismissal under normal times of operation. However, only a minor share of the displacements in downsizings may be attributed to opportunistic sorting by employers, suggesting that EPL may not be an important obstacle to firms’ firing of individual workers.
    Keywords: Downsizing; sickness absence; employment protection
    JEL: I18 J63 J65
    Date: 2008–05
  20. By: Erwin Ooghe
    Abstract: Ok and Lambert (1999) show that one does not have to be a utilitarian to accept Atkinson and Bourguignon’s (1987) sequential generalized Lorenz dominance criterion, because the latter is also supported by a much wider class of aggregation functions. We take a minimal stance, we show that it suffices to be a weighted utilitarian –with higher weights for the more needy– to accept it. We also discuss some possible extensions.
    Date: 2008–03
  21. By: Charles W. Mooney, Jr. (Visiting Scholar, Institute for Monetary and Economic Studies Bank of Japan (Fall 2006), Charles A. Heimbold, Jr. Professor of Law, University of Pennsylvania Law School.)
    Abstract: This paper compares the private law of the United States and Japan that applies to the holding of securities through intermediaries, such as securities firms and banks. In particular, it focuses on Articles 8 and 9 of the United States Uniform Commercial Code and the Japanese Book-Entry Transfer Act. That act is now in effect in Japan for most securities other than equity securities and it will become operative for equities in January 2009. The paper also examines the proposed UNIDROIT Draft Convention on Substantive Rules regarding Intermediated Securities. The Convention will be discussed at a diplomatic conference to be held in Geneva in September 2008, with the goal of adopting a final text. It considers the Convention on alternative assumptions that the non-Convention law is the law of the United States or the law of Japan. It generally concludes that the functional approach (i.e., result- oriented, as opposed to doctrine- or theory-oriented) adopted by the Convention is successful and appropriate. Finally, the paper considers differences between United States law and Japanese law in the context of similarities and differences in the principal systems and practices for clearance and settlement of securities transactions in the United States and Japan.
    Keywords: book-entry, central securities depository, intermediary, securities, securities account, security interest, settlement
    Date: 2008–05
  22. By: Ben Lockwood; John Whalley
    Abstract: We discuss emerging proposals for border tax adjustments (BTAs) to accompany commitments to reduce carbon emissions in the EU, the US and other OECD economies. The rationale offered for such border adjustment is that various entities, such as the EU, if making commitments to reduce emissions which go beyond those undertaken in other regions of the world, impose added costs on domestic producers which create a competitive disadvantage for them. Some form of remedy is viewed as reasonable to maintain the competitiveness of domestic industries when responding to global environmental problems. In this paper, we argue that despite its current carbon manifestation, the issue of border tax adjustments and both their rationale and their effects on trade are not new and, despite the present debate (which seems to overlook older literature), have arisen before. Earlier debate on border tax adjustments occurred at the time of the adoption of the Value Added Tax (VAT) in the EU as a tax harmonization target in the early 1960’s. But academic literature of the time showed that a change between origin and destination basis in the VAT would be neutral and hence the use of a destination based tax in the EU to accompany the VAT offered no trade advantage to Europe. Here we argue that essentially the same arguments also apply for carbon motivated BTAs, and in the current debate there seems to be a misconception between price level effects and relative price effects stemming from a BTA, which needs correcting. We also argue that the impact of border tax adjustments should be viewed as independent of the motivation of the adjustments.
    JEL: F13 F18 Q56
    Date: 2008–05
  23. By: Antonio Cabrales; Sergi Jiménez-Martín
    Abstract: This paper studies price determination in pharmaceutical markets using data for 25 countries, six years and a comprehensive list of products from the MIDAS IMS database. A key finding is that the U.S. has prices that are not significantly higher than those of countries with similar income levels, specially those that are "lightly regulated". More importantly, price differences to the US levels increase for "branded" or innovative products, and decrease, regardless of the level of regulation for mature or widely diffused molecules. In addition, the nationality of the producer appears to have a small and often in significant impact on prices. We have constructed a theoretical model that accounts for all these findings simultaneously. One interesting aspect of the model is that it shows that reference pricing confers a degree of protection against government intervention. Thus, there is a sense in which a reference price (or similar) policy in one country becomes a “commitment device to avoid lowering price in another one.
    Date: 2008–05

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