nep-reg New Economics Papers
on Regulation
Issue of 2008‒08‒21
ten papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Regulation with Budget Constraints Can Dominate Regulation by Price and by Quantity By Linda Cohen; Amihai Glazer
  2. Economic Analysis of a Japanese Air Pollution Regulation: An Optimal Retirement Problem under Vehicle Type Regulation in the NOx–Particulate Matter Law By Iwata, Kazuyuki; Arimura, Toshi
  3. Quality of Financial Sector Regulation and Supervision Around the World By Alexander F. Tieman; Martin Cihák
  4. Assessing the Long-Run Economic Impact of Labour Law Systems: A theoretical Reappraisal and Analysis of New Time Series Data By Simon Deakin; Prabirjit Sarkar
  5. Do environmental regulations reduce greenhouse gas emissions? A study on Canadian industries By Sedigh, Golnaz
  6. Network Structure and Design in the Deregulated U.S. Airline Industry: an Argument for Re-Regulation? By Sayed Ajaz Hussain; Serkan Bahceci
  7. Green, Brown, and Now White Certificates - Are Three One Too Many? : A Micromodel of Market Interaction By Georg Meran; Nadine Wittmann
  8. Compensation for Electricity Consumers Under a U.S. CO2 Emissions Cap By Paul, Anthony; Burtraw, Dallas; Palmer, Karen
  9. Joint Dominance and Tacit Collusion - An Analysis of the Irish Vodafone/O2 Case and the Implications for Competition and Regulatory Policy By Patrick Massey; Moore McDowell
  10. Comparing Price and Non-price Approaches to Urban Water Conservation By Olmstead, Sheila M.; Stavins, Robert N.

  1. By: Linda Cohen (Department of Economics, University of California-Irvine); Amihai Glazer (Department of Economics, University of California-Irvine)
    Abstract: A government can use several mechanisms to induce firms to reduce pollution. Well studied are regulations by price and by quantity. We consider a third form of regulation -- government allocates a budget to an agency which subsidizes abatement. We demonstrate that uncertainty can make such constrained regulation more efficient than either regulation by quantity or regulation by price. We also show that the optimal budget declines with a mean-preserving spread in the distribution of marginal costs.
    Keywords: Regulation; Environmental subsidy; Pollution control
    JEL: H23 Q52
    Date: 2008–08
  2. By: Iwata, Kazuyuki; Arimura, Toshi
    Abstract: This paper empirically examines the vehicle type regulation that was introduced under the Automobile Nitrogen Oxides–Particulate Matter Law to mitigate air pollution problems in Japanese metropolitan areas. The vehicle type regulation effectively sets various timings of vehicle retirement by the first registration year and by type. However, there was no consideration of cost or efficiency in choosing the timing of retirement. We set and solve an optimal problem to maximize the social net benefit under the current framework of the vehicle type regulation. The analysis finds that the net benefit can increase by about 104 percent if the optimal retirement timing is chosen. Further, we confirm that even a simple alteration of retirement timing can increase the social net benefit by 13 percent. Thus, we confirm the importance of an ex-ante quantitative policy evaluation, a regulatory impact analysis, from the viewpoint of efficiency.
    Keywords: air pollution, regulatory impact analysis, NOx-PM law, cost–benefit analysis, optimal retirement model
    JEL: Q52 Q53 Q58
  3. By: Alexander F. Tieman; Martin Cihák
    Abstract: The paper analyzes the quality of financial sector regulation and supervision around the globe. Unlike studies that collect and analyze data on regulation and supervision "on the books," this study also analyzes available information on supervisory implementation, making use of data from IMF-World Bank assessments of compliance with international standards and codes. Incorporating supervisory implementation into the study provides an improved means of assessing countries' regulatory systems. We find that countries' regulatory frameworks score on average one notch below full compliance with the standards (on a 4-notch scale). There are substantial differences in the quality of regulatory and supervisory frameworks across countries, with the income level being a major factor.
    Keywords: Financial sector , Bank regulations , Bank supervision , Standards and codes , Financial stability , Financial system stability assessment , Basel Core Principles , Financial Sector Assessment Program ,
    Date: 2008–08–05
  4. By: Simon Deakin; Prabirjit Sarkar
    Abstract: Standard economic theory sees labour law as an exogenous interference with market relations and predicts mostly negative impacts on employment and productivity. We argue for a more nuanced theoretical position: labour law is, at least in part, endogenous, with both the production and the application of labour law norms influenced by national and sectoral contexts, and by complementarities between the institutions of the labour market and those of corporate governance and financial markets. Legal origin may also operate as a force shaping the content of the law and its economic impact. Time-series analysis using a new dataset on legal change from the 1970s to the mid-2000s shows evidence of positive correlations between regulation and growth in employment and productivity, at least for France and Germany. No relationship, either positive or negative, is found for the UK, and although the US shows a weak negative relationship between regulation and employment growth, this is offset by productivity gains.
    Keywords: labour law, employment, productivity, redistribution, complementarities, legal origins, varieties of capitalism
    JEL: K31 J83
    Date: 2008–06
  5. By: Sedigh, Golnaz
    Abstract: This paper uses the Canadian industrial macro-level data from CANSIM to investigate the effect of formal and informal regulations on pollution intensity. Proxies for formal and informal regulation variables are defined as in Cole et al., 2005. The econometrics model is a panel with 23 manufacturing industries over 10 years, from 1994 to 2003. Manufacturing industries are chosen because they are the most pollutant industries. It is found that formal and informal regulations have significant effects on decreasing the direct and indirect greenhouse gas emissions in Canadian industries. Provinces with younger populations have stricter informal regulation on pollution density, because younger populations care more about the future quality of the environment. Also, provinces with a higher rate of unemployment have less formal regulation on pollution density; for those provinces, providing employment for citizens is more important than providing a healthy environment. Wealthier provinces with a low employment rate face less pressure from society and can spend more money on the environment; therefore, they have lower pollution density. Furthermore, industries with large average firm size can decrease emissions more than other industries. The cost of controlling the emissions decreases with firm size because of economies of scale.
    Keywords: Keywords: Canadian manufacturing industries; Air pollution; Environmental regulations
    JEL: Q28 O13 Q21 L60
    Date: 2008–05
  6. By: Sayed Ajaz Hussain; Serkan Bahceci
    Abstract: This paper develops a model to explain and analyze the evolution of network structure (connectivity)and design (flight frequency, aircraft size, prices) in the post-deregulation U.S. airline industry. We show that legacy carriers choice of Hub-and-Spoke networks and the emergence of low cost carriers (LCCs) operating Point-to-Point networks were optimal choices. We demonstrate that LCCs need not necessarily charge lower prices, and their entry impacted legacy carriers’ prices in all markets, even those where there is no direct competition. We show that in response to entry, legacy carriers optimally lower flight frequency, leading to longer wait times between flights for which passengers are compensated by lower prices; conversely, if the entrant later exits, legacy carriers raise flight frequency and therefore prices, which may erroneously appear to be predatory pricing when in fact it is the consequence of optimal network redesign. Finally, we demonstrate that even though low cost carriers lower prices, total social welfare with competing network structures can also be lowered. In other words, the poor financial performance of legacy carriers is not due to their inefficiency per se but due to an efficient Hub-and-Spoke network undermined by competition from inefficient Point-to-Point networks. We argue that social welfare may have been, and still can be, higher if entry and exit in air passenger travel industry is regulated.
    Keywords: Networks, Airlines, Regulation
    JEL: L4 L5 L9 C6 M2
    Date: 2008–08–08
  7. By: Georg Meran; Nadine Wittmann
    Abstract: Our paper deals with modeling the effects of introducing a market-based tool for improving end-users' efficiency in an energy market which is already regulated through a cap-and-trade system for green house gas emissions and a quota system meant to improve competitiveness of energy produced using renewable resources. Our results show that the regulation of energy demand achieves its underlying objects of energy savings and energy efficiency solely at the expense of other goals such as the environmental efficiency of energy production. In our model, the implementation of a market for White Certificates (WCTS) causes energy producers' investment in abatement to decrease along with the price for Brown Certificates and the amount of renewable energy demanded. Once we turn to the currently more empirically relevant case of integrating end-users only partially into WCTS, the unregulated group compensates in parts for the decrease in demand of the regulated group, due to an indirect price effect. As both supply and demand side of the market are regulated, this special set of regulations applied can, therefore, be compared to the grip of pincers embracing the entire market, leaving some of it virtually scarred. Consequently, we intended to search for alternative policy measures, which are able to achieve an increase in end-users' energy efficiency without the negative side-effects witnessed in case of a WCTS. In our model a subsidized reduction in the price for households' investment in energy efficiency renders just slightly more favorable results than an implementation of WCTS. However, the most effective way to accomplish all goals of environmental policy alike is to reduce the cap on emissions.
    Keywords: Energy markets, certificate trading scheme, white certificates, efficiency, regulation, market-based tool, pincers policy
    Date: 2008
  8. By: Paul, Anthony (Resources for the Future); Burtraw, Dallas (Resources for the Future); Palmer, Karen (Resources for the Future)
    Abstract: Policies to cap emissions of carbon dioxide (CO2) in the U.S. economy could pose significant costs on the electricity sector, which contributes roughly 40 percent of total CO2 emissions in the U.S. Using a detailed simulation model of the electricity sector, we evaluate alternative ways that emission allowances can be allocated. Most previous emissions trading programs have allocated the major portion of allowances for free to incumbent firms. In the electricity sector this approach would lead to changes in electricity price that vary by region primarily based primarily on whether prices are market-based or determined by cost-of-service regulation. Allocation to customers, which could be achieved by allocation to local distribution companies (retail utilities) would recover symmetry in the effect of free allocation and lead to signficiantly lower overall electricity prices. However, this form of compensation comes with an efficiency cost that will increase the overall cost of climate policy.
    Keywords: emissions trading, allowance allocations, electricity, air pollution, auction, grandfathering, cost-effectiveness, greenhouse gases, climate change, global warming, carbon dioxide, asset value, compensation
    JEL: Q2 Q25 Q4 L94
    Date: 2008–07–16
  9. By: Patrick Massey (Compecon Limited); Moore McDowell (University College Dublin)
    Abstract: The paper takes as its starting point the Irish telecom regulator ComReg’s finding of joint dominance by two firms in the mobile phone market in Ireland. The paper argues that the regulator’s decision was inconsistent with the facts in the case. However, it argues that the case raises wider questions about the whole concept of joint dominance as it has evolved under EU competition law which in our view is confused. We regard the approach of the ECJ in trying to use a single approach to joint dominance in merger analysis and in competition analysis as unjustified, misguided and at odds with economic analysis.
    Date: 2008–03–15
  10. By: Olmstead, Sheila M.; Stavins, Robert N.
    Abstract: Urban water conservation is typically achieved through prescriptive regulations, including the rationing of water for particular uses and requirements for the installation of particular technologies. A significant shift has occurred in pollution control regulations toward market-based policies in recent decades. We offer an analysis of the relative merits of marketbased and prescriptive approaches to water conservation, where prices have rarely been used to allocate scarce supplies. The analysis emphasizes the emerging theoretical and empirical evidence that using prices to manage water demand is more cost-effective than implementing non-price conservation programs, similar to results for pollution control in earlier decades. Price-based approaches also have advantages in terms of monitoring and enforcement. In terms of predictability and equity, neither policy instrument has an inherent advantage over the other. As in any policy context, political considerations are important.
    Keywords: cost-effectiveness, water conservation, market-based approaches, policy instrument choice, water price
    JEL: Q25 Q28 Q58 L95
    Date: 2008–06–15

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