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on Regulation |
By: | Bigoni, Maria (IMT-Lucca); Fridolfsson, Sven-Olof (Research Institute of Industrial Economics (IFN)); Le Coq, Chloé (Stockholm Institute of Transition Economies); Spagnolo, Giancarlo (Stockholm Institute of Transition Economics) |
Abstract: | Leniency policies and rewards for whistleblowers are being introduced in ever more fields of law enforcement, though their deterrence effects are often hard to observe, and the likely effect of changes in the specific features of these schemes can only be observed experimentally. This paper reports results from an experiment designed to examine the effects of fines, leniency programs, and reward schemes for whistleblowers on firms' decision to form cartels (cartel deterrence) and on their price choices. Our subjects play a repeated Bertrand price game with differentiated goods and uncertain duration, and we run several treatments differing in the probability of cartels being caught, the level of fine, the possibility of self-reporting (and not paying a fine), the existence of a reward for reporting. We find that fines following successful investigations but without leniency have a deterrence effect (reduce the number of cartels formed) but also a pro-collusive effect (increase collusive prices in surviving cartels). Leniency programs might not be more efficient than standard antitrust enforcement, since in our experiment they do deter a significantly higher fraction of cartels from forming, but they also induce even higher prices in those cartels that are not reported, pushing average market price significantly up relative to treatments without antitrust enforcement. With rewards for whistle blowing, instead, cartels are systematically reported, which completely disrupts subjects' ability to form cartels and sustain high prices, and almost complete deterrence is achieved. If the ringleader is excluded from the leniency program the deterrence effect of leniency falls and prices are higher than otherwise. As for tacit collusion, under standard anti-trust enforcement or leniency programs subjects who do not communicate (do not go for explicit cartels) tend to choose weakly higher prices than where there is no anti-trust enforcement. We also analyze post-conviction behavior, finding that there is a strong expost deterrence (desistance) effect. Moreover post-conviction prices are on average lower than before even though the average prices within cartels are the same. Finally, we find a strong cultural effect comparing treatments in Stockholm with those in Rome, suggesting that optimal law enforcement institutions differ with culture. |
Keywords: | Law Enforcement; Antitrust; Cartel Deterrence; Leniency; Experiment |
JEL: | K21 K42 L13 L41 |
Date: | 2008–04–24 |
URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0738&r=reg |
By: | Rovelli, Riccardo (University of Bologna); Bruno, Randolph Luca (University of Bologna) |
Abstract: | We compare labor market policies, institutions and outcomes for the EU member states, for the period 2000-2005. We document the main differences in Labor Market Policies across EU members, including new member states after 2004. We focus on indicators of policy generosity (expenditures relative to GDP) and relate these and other policy indicators to indicators of labor market outcomes and performance. Our results show that, on a cross-country basis, higher rates of employment are in general associated with: (i) higher expenditures on labor market policies, especially on active policies for countries with a high pro-work attitude; (ii) a lower degree of rigidity in labor market institutions and in product market regulation. |
Keywords: | labor market policies, labor market outcomes, European social models |
JEL: | J08 J38 J68 |
Date: | 2008–05 |
URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3502&r=reg |
By: | Bassanini, Andrea (OECD); Nunziata, Luca (University of Padova); Venn, Danielle (OECD) |
Abstract: | This paper examines the impact of employment protection legislation on productivity in the OECD, using annual cross-country aggregate data on the degree of regulations and industry-level data on productivity from 1982 to 2003. We adopt a "difference-in-differences" framework, which exploits likely differences in the productivity effect of dismissal regulations in different industries. Our identifying assumption is that stricter employment protection influences worker or firm behaviour, and thereby productivity, more in industries where the policy is likely to be binding than in other industries. The advantage of this approach is that, in contrast with standard cross-country analysis, we can control for unobserved factors that, on average, are likely to have the same effect on productivity in all industries. Our empirical results suggest that mandatory dismissal regulations have a depressing impact on productivity growth in industries where layoff restrictions are more likely to be binding. We present a large battery of robustness checks, including dealing with endogeneity issues, that suggest that our finding is robust. |
Keywords: | labour market institutions, EPL, productivity, difference-in-differences |
JEL: | J08 J23 J24 |
Date: | 2008–06 |
URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3555&r=reg |
By: | Michiel Bijlsma; Viktória Kocsis; Nelli Valmari |
Abstract: | In most European broadband Internet markets local loop unbundling is mandated under a cost-based regulated access price. We construct a model for differentiated Cournot competition between service-based and infrastructure-based firms, out of which one infrastructure-based firm (the incumbent) supplies to the service-based firms. We seek for and compare the socially optimal and the incumbent’s profit maximizing access price in two scenarios: (i) service-based firms and incumbent supply homogeneous services (partial differentiation), and (ii) all services are horizontally differentiated (uniform differentiation). We show that in both cases the incumbent never forecloses service-based firms if infrastructure-based competition is present or if services are somewhat differentiated. Under uniform differentiation the welfare optimizing access price is below marginal cost, hence the incumbent subsidizes the production of service-based firms and makes zero profit. In the case of partial differentiation, the same result obtains when both markets are concentrated. However, if markets are not concentrated, the socially optimal access fee exceeds the marginal cost. |
Keywords: | broadband Internet market; imperfect competition; product differentiation; access regulation |
JEL: | L13 L51 L86 L96 |
Date: | 2008–06 |
URL: | http://d.repec.org/n?u=RePEc:cpb:discus:106&r=reg |
By: | Jonathan Witmer |
Abstract: | This paper calculates an implied cost of equity for 19 developed countries from 1991 to 2006. During this period, there has been a decline in the cost of equity of about 10-15 bps per year, which can be partially attributed to declining government yields and declining inflation. Analyst forecast inaccuracy, a proxy for firm-level earnings opacity, is positively related to the cost of equity. If this variable captures differences in disclosure across firms, then improvements in disclosure regulation may benefit firms by lowering their cost of equity. I also include countrylevel variables that measure disclosure requirements, director liability, and the ability for shareholders to sue directors. Higher levels of these measures are associated with a lower cost of equity. Previous studies [e.g., Hail and Leuz (2006a)] have found a similar relation, but my study is unique in that it uses a different measure of investor protection, which may better reflect regulatory differences across countries, and it shows this relation holds for developed countries. After controlling for the characteristics of firms that analysts choose to cover in each country, differences in the properties of analyst forecasts across countries, and differences in accounting standards across countries, Canada’s cost of equity is statistically different from a handful of countries and is about 20 to 40 bps higher than that of the United States. Lowering Canadian firms' cost of equity by this amount would have large economic benefits given the size of Canada's capital markets. |
Keywords: | Financial markets; International topics |
JEL: | G30 G38 |
Date: | 2008 |
URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-21&r=reg |
By: | Allen Berger; Robert DeYoung; Mark Flannery; David Lee; Ozde Oztekin |
Abstract: | Large banking organizations in the U.S. hold significantly more equity capital than the minimum required by bank regulators. This capital cushion has built up during a period of unusual profitability for the banking system, leading some observers to argue that the capital merely reflects recent profits. Others contend that the banks deliberately choose target capital levels based on their risk exposures and their counterparties’ sensitivities to default risk. In either case, the existence of “excess” capital makes it difficult to observe how banks manage their capital levels, particularly in response to regulatory changes (such as Basel II). We propose several hypotheses to explain this “excess” capital, and test these hypotheses using annual panel data for large, publicly traded U.S. bank holding companies (BHCs) from 1992 through 2006, and an innovative partial adjustment approach that allows both the target capital ratios and the speed of adjustment toward those targets to vary with firm-specific characteristics. We find evidence to suggest that large BHCs actively managed their capital ratios during our sample period. Our tests suggest that large BHCs choose target capital levels substantially above well-capitalized regulatory minima; that these targets increase with BHC risk but decrease with BHC size; that BHCs adjust toward these targets relatively quickly; and that adjustment speeds are faster for poorly capitalized BHCs, but slower (ceteris paribus) for BHCs under severe regulatory pressure. |
Keywords: | Banks and banking ; Capital |
Date: | 2008 |
URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp08-01&r=reg |
By: | Carletti, E.; Hartmann, P.; Ongena, S. (Tilburg University, Tilburg Law and Economics Center) |
Date: | 2008 |
URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2008006&r=reg |
By: | Bottazzi, L.; Da Rin, M.; Hellmann, T. (Tilburg University, Tilburg Law and Economics Center) |
Date: | 2008 |
URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2008014&r=reg |