nep-reg New Economics Papers
on Regulation
Issue of 2008‒08‒14
fourteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. European Commission Opinions to National Courts in Antitrust Cases: Consistent Application and the Judicial-Administrative Relationship By Kathryn Wright
  2. Labour Regulation and Employment Dynamics at the State Level in India By Sean Dougherty
  3. New actions on the housing and financial crises—do no harm? By Tatom, John A.
  4. Consumer protection and the incentive to become informed By Armstrong, Mark; Vickers, John; Zhou, Jidong
  5. Labour-Market Reforms and the Beveridge Curve: Some Macro Evidence for Italy By Sergio Destefanis; Raquel Fonseca
  6. The effect of institutional setting on attributional content in management commentary reports By Aerts W.; Tarca A.
  7. On the (In)Effectiveness of Some Commonly Proposed Anti-Corruption Reforms By Evrenk, Haldun
  8. India’s Growth Pattern and Obstacles to Higher Growth By Sean Dougherty; Richard Herd; Thomas Chalaux; Abdul Erumban
  9. 'Consumer Welfare' and Article 82EC: Practice and Rhetoric By Pinar Akman
  10. A cost-efficient site-selection model for European wetland restorati By Christine Schleupner; Uwe A. Schneider
  11. ‘Living’ Wage, Class Conflict and Ethnic Strife By Dasgupta, Indraneel
  12. A Game-Theoretic Explanation for the Persistence of Political Corruption By Evrenk, Haldun
  13. A Tradable Permit System in an Intertemporal Economy: A General Equilibrium Approach By Kenichi Akao; Shunsuke Managi
  14. Caveat Venditor: The Conditional Effect of Relationship-Specific Investment on Contractual Behavior By Peter Murrell; Radu Paun

  1. By: Kathryn Wright (Centre for Competition Policy, University of East Anglia)
    Abstract: The House of Lords judgment in Inntrepreneur v Crehan, where the court did not consider itself bound by a finding of the European Commission, demonstrated the potentially contentious and constitutionally significant nature of the relationship between the European Commission and national judges in the field of antitrust. The decentralisation of enforcement of Articles 81 and 82EC arguably carries greater risks of divergent application of EC antitrust enforcement rules. While national competition authorities are linked through the European Competition Network, no such mechanism exists for national courts as this would offend against the principles of judicial independence and procedural autonomy. The Commission, as primary enforcer of competition law in the Community, has therefore attempted to complement the formal judicial 'dialogue' of the European Court of Justice's preliminary reference procedure with a strengthening of its own relations with the national courts. After addressing the broader theoretical context of administrative intervention in judicial decision-making, this paper examines the use of one tool to promote consistent application of EC antitrust rules - non-binding European Commission opinions and amicus curiae briefs to national courts in antitrust proceedings under Article 15 of the Modernisation Regulation. It identifies national cases where the Commission has actually intervened under Article 15 and assesses the nature and efficacy of this soft law mechanism. One finding is the difficulty in finding and tracing the cases, making the impact of the Commission’s advice difficult to judge. Transparency is desirable for legitimacy, legal certainty, and if Commission opinions are to have the most impact for promoting convergent application of EC antitrust rules among national judges.
    Keywords: European Commission, national courts, amicus curiae, Modernisation Regulation, public and private competition enforcement
    JEL: K12 K49 P48
    Date: 2008–07
  2. By: Sean Dougherty
    Abstract: Over the past decade, labour market outcomes have improved in India, with net employment rising markedly for the economy as a whole. However, these gains have arisen primarily in the unorganized and informal sectors of the economy, where productivity and wages are generally much lower than in the formal organized sector. It is only India’s organized sector that is subject to labour market regulation, and here employment has fallen. The role of employment protection legislation in affecting employment outcomes is controversial both in the OECD area and in India. This paper looks at the impact of employment protection legislation and related regulation on the dynamics of employment in the organized sector of the economy, using newly constructed measures of national regulation and state labour reforms. We find that while reforms have taken some of the bite out of core labour laws, more comprehensive reforms are needed to address the distortions that have emerged. This working paper relates to the 2007 Economic Survey of India ( <P>Réglementation du travail et dynamiques de l’emploi au niveau de l’État en Inde <BR>Au cours de la dernière décennie, les résultats du marché du travail se sont améliorés en Inde, l’emploi net augmentant de façon sensible dans l’ensemble de l’économie. Cependant, ces gains sont intervenus essentiellement dans les secteurs non organisé et informel de l’économie, où la productivité et les salaires sont généralement bien moindres que dans le secteur organisé formel. Seul le secteur organisé est assujetti à la réglementation du marché du travail et, dans ce secteur, l’emploi a diminué. L’incidence de la législation de protection de l’emploi sur la performance du marché du travail est sujette à controverses aussi bien dans la zone de l’OCDE qu’en Inde. Le présent article examine l’impact de cette législation et des réglementations associées sur la dynamique de l’emploi dans le secteur organisé de l’économie, en utilisant de nouvelles mesures de la réglementation nationale et des réformes au niveau des Etats. Il ressort de cette étude que si les réformes ont permis d’assouplir quelque peu la rigidité du droit fondamental du travail, des mesures plus approfondies sont nécessaires pour remédier aux distorsions qui sont apparues. Ce document de travail se rapporte à l’Étude économique de l’Inde 2007 (
    Keywords: labour laws, employment protection indicators, job turnover, labour market distortions, législation du travail, indicateurs de protection de l’emploi, rotation du travail, distorsion du marché du travail
    JEL: G38 J21 J63 K20
    Date: 2008–08–04
  3. By: Tatom, John A.
    Abstract: On July 27, 2008, the U.S. Senate passed and sent on to the president the “Housing and Economic Recovery Act of 2008,” reportedly the most important hosing bill since the Great Depression. The bill was originally aimed at addressing the foreclosure crisis which began in late 2006 and became especially apparent in the financial crisis that emerged in August 2007. Its passage was accelerated by the near or real failures of Fannie Mae and Freddie Mac, the nation’s two largest government sponsored enterprises (GSEs), who play a central role in the functioning of the nation’s housing, mortgage and financial markets. It is unlikely that the new steps will have much effect on the foreclosure crisis or short-term economic performance, but they create serious uncertainty over the future of the GSEs, federal finance and the status and role of the U.S. financial markets. It is likely, however, that the new arrangements for Fannie Mae and Freddie Mac will not remain static for more than a few months and that newly authorized steps for the new regulator of the GSEs are likely to ramp up the discussion and need for regulation soon.
    Keywords: U.S. Housing Bill; GSE reform; foreclosure crisis; financial regulation
    JEL: E62 E44 G28
    Date: 2008–07–31
  4. By: Armstrong, Mark; Vickers, John; Zhou, Jidong
    Abstract: We discuss the impact of consumer protection policies on consumer incentives to become informed of the best deals available in the market. In a market with costly consumer search, we find that imposing a cap on suppliers' prices reduces the incentive to engage in search, with the result that prices paid by consumers (both informed and uninformed) may rise. In a related model where consumers have the ability to refuse to receive marketing, we find that this ability softens price competition and can make all consumers worse off.
    Keywords: Consumer protection; search; price caps; advertising
    JEL: D18 L51 D83
    Date: 2008–08
  5. By: Sergio Destefanis; Raquel Fonseca
    Abstract: A matching theory approach is utilised to assess the impact on the Italian labour market of the 1997 legge Treu, which considerably eased the regulation of temporary work and favoured its growth in Italy. The authors re-parameterise the matching function as a Beveridge Curve and estimate it as a production frontier, finding huge differences in matching efficiency between the South and the rest of the country. The legge Treu appears to have improved matching efficiency in the North of the country, particularly for skilled workers, but also to have strengthened competition among skilled and unskilled workers, especially in the South.
    Keywords: temporary contracts, matching efficiency, regional disparities
    JEL: J64 J69 C24
    Date: 2006–10
  6. By: Aerts W.; Tarca A.
    Abstract: We study the effect of expected regulatory and litigation costs embedded in a country’s institutional environment on the explanatory content of management commentary reports. Using a behavioural accountability lens, we argue that regulatory control and expected litigation risk affect the attributional framing of financial performance. We also investigate whether differential attributional properties have economic relevance by considering the relationship between content profiles and analyst forecast dispersion. We include 173 listed firms from four countries (USA, Canada, United Kingdom and Australia). Consistent with behavioural accountability theory, we find significant country differences in dominant attributional profiles. Compared to their counterparts in the UK and Australia, firms from the USA and Canada are generally less assertive and less defensive in explicit causal framing. They are also more extensive and formal in their explanations, relying more heavily on accounting-technical language. These tendencies are more pronounced in the USA, where the aggregate of private and public enforcement is greatest. Moreover, we establish that causal defensiveness and attributional extensiveness are negatively associated with analyst forecast dispersion, while level of causal assertiveness and formality are not.
    Date: 2008–06
  7. By: Evrenk, Haldun (Suffolk University, Department of Economics)
    Abstract: Using a theoretical model of two-candidate political competition under probabilistic voting, I study the effectiveness of the following anti-corruption reforms: (i) higher wages for politicians, (ii) higher penalties for political corruption, and (iii) constitutional constraints on the tax rates and the public good levels. In the setup I study, the competing candidates may differ in their popularity, (non-verifiable) ability, and corruptibility. I find that the reforms are more likely to be effective when the candidates are (almost) identical. When the candidates differ significantly from each other, each reform may increase equilibrium level of corruption or reduce voters' welfare.
    Keywords: Anti-Corruption Reform; Political Corruption; Constitutional Constraints
    JEL: D72 H30 H83 K42
    Date: 2008–05–15
  8. By: Sean Dougherty; Richard Herd; Thomas Chalaux; Abdul Erumban
    Abstract: India’s growth performance has improved significantly over the past 20 years, but has been uneven across industries and states. While some service industries, notably in the information and communications technology sector, have become highly competitive in world markets – yielding considerable gains for employees and investors – manufacturing industries have lagged and improved their performance only recently. A divergence in performance has taken place, with firms in those states and sectors with the best institutions gaining, and those in the more tightly regulated states and sectors falling further behind. As a result, the competitive landscape is uneven across sectors and states and a high degree of concentration continues to prevail in different industries. While this is partly the result of the legacy of licensing, change has been politically difficult, making it harder for the manufacturing sector than for the service sector to expand. The need for further institutional reforms is urgent, focusing on product and labour market regulations at the central and state levels. This working Paper relates to the 2007 Economic Survey of India ( <P>Profil de croissance de l’Inde et obstacles à une accélération de la croissance <BR>La croissance en Inde s’est sensiblement améliorée depuis une vingtaine d’années, mais les performances sont inégales d’un secteur ou d’un État à l’autre. Si certaines industries de services, notamment dans le secteur des technologies de l’information et des communications, sont désormais très compétitives sur les marchés mondiaux – à l’origine de gains considérables pour les salariés et les investisseurs – les industries manufacturières restent à la traîne et n’ont commencé que récemment à améliorer leur performance. Les écarts se sont creusés, les entreprises des États et secteurs dotés des institutions les plus efficaces allant de l’avant, tandis que celles des États et secteurs plus strictement réglementés accusaient plus encore leur retard. D’où un paysage concurrentiel fort dissemblable d’un secteur ou d’un État à l’autre, et une forte concentration, notamment aux mains de la puissance publique, dans plusieurs secteurs d’activité. S’il faut y voir pour une part un héritage du système des autorisations administratives, les évolutions ont été politiquement délicates, rendant plus difficile l’expansion du secteur manufacturier que celle du secteur des services. Il est impératif de poursuivre les réformes institutionnelles, en privilégiant la réglementation des marchés de produits et du travail, aux niveaux aussi bien de l’administration centrale que des États. Ce document de travail se rapporte à l’Étude économique de l’Inde 2007 (
    Keywords: productivity, productivité, réglementation, regulation, specialisation, spécialisation, firm microdata, micro-données d'entreprise, regional concentration, concentration régionale, manufacturing development, développement industriel
    JEL: D4 F15 L11 O12
    Date: 2008–08–04
  9. By: Pinar Akman (Centre for Competition Policy and Norwich Law School, University of East Anglia)
    Abstract: This paper questions whether the objective of Article 82EC is indeed enhancing ‘consumer welfare’ as suggested by the EC Commission when one examines the application of the provision thus far. It critically analyses the case law of the EC Commission and Courts to show that there is great dissonance between the practice and the policy declarations on the provision. When one considers the practice alongside the rhetoric, Article 82EC appears as a provision enforced without a clear standard of harm leading to doubts about the legitimacy of enforcement. The article suggests that without a properly defined standard applied in actual decisions by the EC Commission and upheld by the EC Courts, the modernisation of Article 82EC cannot succeed.
    Keywords: Article 82EC, consumer welfare, restriction of competition, abuse of a dominant position, enforcement
    JEL: K21 P46
    Date: 2008–07
  10. By: Christine Schleupner; Uwe A. Schneider (Research unit Sustainability and Global Change)
    Date: 2008–07
  11. By: Dasgupta, Indraneel (University of Nottingham)
    Abstract: We examine how group-specific differences in reservation wage, arising due to asymmetries in social entitlements, impact on distribution via the joint determination of class conflict between workers and employers, and ‘ethnic’ conflict among workers. We model a two-dimensional contest, where two unions, representing different sections of workers, jointly but non-cooperatively invest resources against employers in enforcing an exogenously given rent, while also contesting one another. The rent arises from a ‘living’ wage, set above reservation wage rates via labour regulations. We show that high reservation wage workers gain, and employers lose, from better social entitlements for low reservation wage workers. The latter however benefit, with employers and against the former, from weak labour regulations. When minority/immigrant workers are marginalized both in the labour market and in non-wage entitlements, improving job access and expanding ‘social support’ has contradictory effects on class and ethnic conflicts. ‘Trade unionism’, i.e. political articulation of shared economic interests alone, appears insufficient to temper ethnic conflicts among workers.
    Keywords: class conflict, ethnic conflict, living wage, labour regulation, social entitlement, affirmative action, Distribution
    JEL: D31 D72 D74 I38 J52 O17
    Date: 2008–08
  12. By: Evrenk, Haldun (Suffolk University, Department of Economics)
    Abstract: Using a theoretical model of two-candidate competition, I study the political support for a fully effective and costless reform targeting high level political corruption. I find that when the candidates have a high discount factor, and when the level of political corruption is not too low, both corrupt and honest candidates have incentives to oppose the reform. I also find that a fully informed and fully coordinated electorate can change a candidate's incentives by bundling the reform with high wages and by voting strategically.
    Keywords: Political Corruption; Political Economy of Anti-Corruption Reform
    JEL: D72 K42
    Date: 2008–04–20
  13. By: Kenichi Akao (School of Social Sciences, Waseda University, and Institute of Economic Research, Kyoto University); Shunsuke Managi (Faculty of Business Administration, Yokohama National University)
    Abstract: The creation of an artificial market through a tradable permit system as a remedy against market failure is gaining popularity among analysts and policymakers. We show that in an intertemporal competitive economy, a tradable permit system may not achieve efficiency without setting appropriate permit interest rates (rewards for holding permits), and to find them, we must know in advance the path of efficient permit prices, which is difficult or impossible to obtain. We deal with this problem in two ways. First, we seek a special case in which the permit interest rates are given by a simple rule. Second, we propose a mechanism by which the permit interest rates are generated endogenously. The determinacy of an equilibrium under a tradable permit system is also examined.
    Keywords: Auction; artificial market, tradable permit system, general equilibrium, permit interest rate, permit bank, indeterminacy
    JEL: H23 K32 Q58
    Date: 2008–08
  14. By: Peter Murrell (Department of Economics, University of Maryland); Radu Paun (Competition Council of Romania)
    Abstract: We offer a new perspective on the effect of relationship-specific investment on contract complexity, which has broad implications because complex contracts and vertical integration are substitutes. A simple model using transaction cost economics (TCE) predicts that buyer and seller relationship-specific investments have opposite effects on contract complexity. The model also predicts the signs of biases in OLS estimates of the effect of relationship-specific investments: unobserved heterogeneity causes downward bias in the estimated difference between the effects of buyer and seller specific investment, reducing the probability of finding opposite effects. We examine these predictions using data on agreements made by Romanian firms. When accounting for unobserved heterogeneity, seller relationship-specific investment has a positive effect on contract complexity while buyer investment has a negative effect. OLS estimates do not generate this result. The unique contribution of the paper is in simultaneously implementing TCE empirically, countering the problem of unobserved heterogeneity, generating estimates of the effects of specific investment that have opposite signs on opposite sides of the agreement, and explaining patterns of bias in the OLS estimates. Additionally, regional variation in court quality affects the complexity of contracts, suggesting that even moderate amounts of legal reform can have appreciable effects.
    Keywords: transaction cost economics, TCE, contract, contract complexity, property-rights theory, relationship-specific investment, legal system, transition, Romania
    JEL: D23 K12 L14 L22 O17 P3
    Date: 2008–07

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