nep-reg New Economics Papers
on Regulation
Issue of 2008‒06‒13
eight papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Productivity and Efficiency of US Gas Transmission Companies: A European Regulatory Perspective By Jamasb, T.; Pollitt, M.G.; Triebs, T.
  2. Bank Capital Requirements, Business Cycle Fluctuations and the Basel Accords: A Synthesis By Inês Drumond
  3. Transmission expansion in Argentina 5: the Regional Electricity Forum of Buenos Aires Province By Littlechild, S.C.; Ponzano, E.A.
  4. Enduring Rents. By Aidt, T.; Hillman, A.
  5. Private Equity and Regulatory Capital By Bongaerts, D.; Charlier, E.
  6. Promoting clean technologies: The energy market structure crucially matters By Théophile T. Azomahou; Raouf Boucekkine; Phu Nguyen-Van
  7. Interests or principles? EU foreign policy in the ILO By Marianne Riddervold
  8. On the Role and Design of Dispute Settlement Procedures in International Trade Agreements By Giovanni Maggi; Robert W. Staiger

  1. By: Jamasb, T.; Pollitt, M.G.; Triebs, T.
    Abstract: On both sides of the Atlantic the regulation of gas transmission networks has undergone major changes since the early 1990’s. Whereas in the US the long-standing regime of cost-plus regulation was complemented by increasing pipe-to-pipe competition, most European countries moved towards incentive regulation complemented by market integration. We study the impact of US regulatory reform using a Malmquist-based productivity analysis for a panel of US interstate companies. Results are presented for changes in productivity, as well as for several convergence tests. The results indicate that taking productivity and convergence as performance indicators, regulation has been rather successful, in particular during a period where overall demand was flat. Lessons for European regulators are twofold. First, the US analysis shows that benchmarking of European transmission operators would be possible if data were available. Second, our results suggest that, in the long-run, market integration and competition are alternatives to the current European model.
    Keywords: Natural gas transmission; utility regulation; data envelopment analysis; total factor productivity; convergence
    JEL: L51 L95 O57 D24
    Date: 2008–03
  2. By: Inês Drumond (CEMPRE, Faculdade de Economia, Universidade do Porto)
    Abstract: In order to survey the mechanisms through which the introduction of Basel II bank capital requirements is likely to accentuate the procyclical tendencies of banking, this paper brings together the theoretical literature on the bank capital channel of propagation of exogenous shocks and the literature on the regulatory framework of capital requirements under the Basel Accords. We conclude that, although the theoretical models that revisit the bank capital channel under the new Accord generally support the Basel II procyclicality hypothesis, this issue is still subject to some debate. In particular, the magnitude of the procyclical effects under Basel II should essentially depend on (i) the composition of banks' asset portfolios, (ii) the approach adopted by banks to compute their minimum capital requirements, (iii) the nature of the rating system used by banks, (iv) the view adopted concerning how credit risk evolves through time, (v) the capital buffers over the regulatory minimum held by the banking institutions, (vi) the improvements in credit risk management, and (vii) the supervisor and market intervention under Basel II.
    Keywords: Bank Capital Channel, Basel Accords, Business Cycles, Procyclicality
    JEL: E44 G28
    Date: 2008–06
  3. By: Littlechild, S.C.; Ponzano, E.A.
    Abstract: This paper supplements analyses of Argentine transmission expansions at the federal level by looking at experience in Buenos Aires province. A Regional Electricity Forum of distribution companies has drawn up and begun to implement a ten-year transmission expansion plan. Contrary to previous fears, getting agreement between the members on investment and cost sharing has not been unduly problematic. More challenging was getting approval of the provincial government on funding. Deferring tariff reductions and using the revenues for investment facilitated the process, and now some innovative financing arrangements are underway. Again contrary to some previous suggestions, the controversial Area of Influence method was extended rather than replaced. This overcame concerns about free-riding. Progress and investment have been severely curtailed by the economic crisis in 2001 and subsequent federal government policy. The arrangements nonetheless appear to be working well, and to be conducive to more efficient transmission expansion. This confirms that it is practicable and advantageous to allow users rather than the transmission company or the regulator to propose and determine transmission investment, even in a meshed rather than radial system. An appropriate regulatory framework is needed to approve that part of the total budget to paid by distribution business consumers, but this does not require the regulator to lead or monitor the detail of the process.
    Keywords: Argentina, electricity, transmission, regulation.
    JEL: L33 L51 L94 L98
    Date: 2007–12
  4. By: Aidt, T.; Hillman, A.
    Abstract: Rent seeking is often studied with reference to a contemporaneous rent evaluated at a point in time. We study the social cost of rent seeking when rents endure over time, but may have to be re-contested because of imperfect rent protection, or may disappear because of deregulation. The present value of a contested rent measures the social cost of rent seeking, irrespective of imperfect rent protection and the prospect of deregulation. Rent seeking is discouraged by the inability of governments to commit to protect rents and by their inability to commit to rentgenerating regulations and policies. Moreover, lasting deregulation can preempt a substantial fraction of the potential rent seeking cost.
    Keywords: Rent seeking, contests, rent dissipation, deregulation, liberalization, commitment.
    JEL: D72
    Date: 2008–01
  5. By: Bongaerts, D.; Charlier, E. (Tilburg University, Center for Economic Research)
    Abstract: Regulatory Capital requirements for European banks have been put forward in the Basel II Capital Framework and subsequently in the Capital Requirements Directive (CRD) of the EU. We provide a detailed discussion of the capital requirements for private equity investments under the simple risk weight approach, the PD/LGD approach and the internal model approach. For the latter we present a structural model for which we calibrate the parameters from a proprietary dataset. We modify the standard Merton structural model to make it applicable in practice and to capture stylized facts of these investments. We also show how to implement the early default features of our model in a simulation algorithm with very low computational costs. Our results support capital requirements lower than in Basel II, but not as low as in CRD. A sensitivity analysis shows that this finding is robust to parameter uncertainty and stress scenarios. This is likely to give adverse incentives to banks for using advanced risk models.
    Keywords: Private Equity;Regulatory Capital;Risk Management
    JEL: G21 G28 G32
    Date: 2008
  6. By: Théophile T. Azomahou (UNU-MERIT, Maastricht University, The Netherlands); Raouf Boucekkine (UCLouvain, Belgium; and University of Glasgow, UK); Phu Nguyen-Van (THEMA-CNRS, Université de Cergy-Pontoise, France)
    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 progress; vintage capital; energy market; natural monopoly; investment subsidies
    JEL: E22 O40 Q40
    Date: 2008
  7. By: Marianne Riddervold
    Abstract: This paper seeks to contribute to the debate about the role of norms in EU foreign policy by looking at EU policies in the International Labour Organization (ILO) in the making of a Consolidated Maritime Labour Convention (ILOMLC). Given the economic importance of shipping for many EU members, one would expect the EU to promote its economic interests in the ILO. However, the EU is instead described as a human rights promoter and has had positions on the ILOMC that following common EU implementation will increase costs for both ship-owners and national administrations. How can this be? I seek to answer by examining the reasons that have mobilized the EU actors to agree to the common EU policies conducted. A distinction is made between three ideal-types of reasons; pragmatic, ethical-political and moral reasons. By applying a framework that separates between different types of norms, I provide a more nuanced picture of the argument that norms influence EU policies. I conclude that moral reasons, supporting a thesis that a concern for establishing international law for the protection of human rights, have been particularly important in mobilizing the EU to promote a Convention of high standards despite of its costs.
    Keywords: ILO; legitimacy; national interest; policy coordination
    Date: 2008–06–15
  8. By: Giovanni Maggi; Robert W. Staiger
    Abstract: Formal economic analysis of trade agreements typically treats disputes as synonymous with concerns about enforcement. But in reality, most WTO disputes involve disagreements of interpretation concerning the agreement, or instances where the agreement is simply silent. And some have suggested that the WTO's Dispute Settlement Body (DSB) might serve a useful purpose by granting "exceptions" to rigid contractual obligations in some circumstances. In each of these three cases, the role played by the DSB amounts to "completing" various dimensions of an incomplete contract. Moreover, there is a debate among legal scholars on whether or not precedent-setting in DSB rulings may enhance the performance of the institution. All of this points to the importance of understanding the implications of the different possible degrees of activism in the role played by the DSB. In this paper we bring formal analysis to bear on this broad question. We characterize the choice of contractual form and DSB role that is optimal for governments under various contracting conditions. A novel feature of our approach is that it highlights the interaction between the design of the contract and the design of the dispute settlement procedure, and it views these as two components of a single over-arching institutional design problem.
    JEL: D02 D78 D86 F13 K12 K33
    Date: 2008–06

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