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on Regulation |
| By: | Michele Fratianni (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) |
| Abstract: | The historical record shows that financial crises are far from being a rare a phenomenon; they occur often enough to be considered part of the workings of finance capitalism. While there is no single hypothesis that can best explain all crises, the implications of the credit boom-and-bust hypothesis, supplemented with asymmetric information, are consistent with the onset and development of many crises, including the current subprime crisis. Governments have reacted to crises by erecting a vast and growing safety net. In turn, to minimize their risk exposure, they have also put in place expansive systems of regulation and supervision. The unwinding of the current crisis will mark a big enlargement of the safety net and moral hazard, as well as a predictable flurry of policy proposals aimed at closing past regulatory loopholes. The maintained hypothesis is that regulatory and market failures are inexorably intertwined. |
| Keywords: | bailout, credit, crisis, money, moral hazard, regulation, safety net, subprime |
| JEL: | E58 F30 G21 N20 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:iuk:wpaper:2008-08&r=reg |
| By: | Michel Aglietta; Sandra Rigot |
| Abstract: | This paper deals with two issues. On the one hand, it shows that structural changes in financial markets and in the hedge funds industry make the “light-touch” arguments for regulating hedge funds no longer relevant. On the other hand, pleas for stronger regulation of hedge funds are getting more attention. In the first part of the paper the huge expansion of the industry is outlined and the state of current regulation is highlighted. In the second part an in-depth analysis of risks associated with hedge funds is carried out. It is shown that systemic risk can arise from leverage and from concentration of exposures amongst hedge funds. The part played by hedge funds in the spread of the crisis of structured credit is portrayed. In the third section, the recommendations of professional organisations, regulatory authorities and international institutions are summed up within the framework of risk mapping. This oversight shows the ways of reform: the need of direct regulation, the enhancement of indirect regulation and the overhaul of securitization. The prospective pattern of regulation encompasses macro and micro issues, and impinges upon factors of demand and supply. It emphasizes the enhanced role of public regulators and displays the conditions of an effective market discipline performed by long run institutional investors. |
| Keywords: | financial leverage, prime brokers, securitization, extreme risks, systemic risk, opacity, long run institutional investors, due diligence, monitoring, disclosure, market discipline, public regulator |
| JEL: | G23 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2008-20&r=reg |
| By: | Mohammad Amin (World Bank); Priya Ranjan (Department of Economics, University of California-Irvine) |
| Abstract: | A vast literature documents better economic institutions in common law compared with civil law countries. The present paper argues that legal origin alone is insufficient to explain differences in the quality of economic institutions across countries. Rather, it is the interaction between legal origin and the quality of political institutions that is important. Empirical evidence from a cross-section of 90 countries on entry regulation, a measure of how business friendly economic institutions are towards firms, strongly supports our claim. For example, we find that the number of procedures required to start a business are lower in common law compared with civil law countries by 2.5 procedures or 24.3% of the sample mean. However, this difference varies sharply across the sample of countries with high and low levels of political accountability. It equals a large 3.4 procedures (37% of the sample mean) for the former and a mere 1.1 procedures (9.7% of the sample mean) for the latter. We conclude that legal origin matters for the quality of economic institutions but only when political accountability is high. We provide a plausible explanation for this phenomenon based on recent findings in the literature on political economy. |
| Keywords: | Legal origin; Regulation,; Political institutions |
| JEL: | H11 K2 P48 P51 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:080912&r=reg |
| By: | Volker Nocke; Michael D. Whinston |
| Abstract: | We analyze the optimal dynamic policy of an antitrust authority towards horizontal mergers when merger proposals are endogenous and occur over time. Approving a currently proposed merger will affect the profitability and welfare effects of potential future mergers, the characteristics of which may not yet be known to the antitrust authority. We show that, in many cases, this apparently difficult problem has a simple resolution: an antitrust authority can maximize discounted consumer surplus by using a completely myopic merger review policy that approves a merger today if and only if it does not lower consumer surplus given the current market structure. |
| JEL: | L0 L4 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14526&r=reg |
| By: | Sonia Ben Kheder (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Natalia Zugravu (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | Although based on theoretical foundations, the pollution haven hypothesis stating that heterogenous environmental regulations between countries influence multinational firms' location decisions, has never been clearly proven empirically. In this study, we reexamine this hypothesis by a fresh take on both its theoretical and empirical aspects. While applying a geographic economy model on French firm-level data, we confirm the pollution haven hypothesis for a global sample. Through sensitivity analysis, we validate it for Central and Eastern European countries, emerging and high-income OECD countries, but not for the major part of the Commonwealth of Independent States countries. Finally, we show that the pollution haven hypothesis is confirmed in the strongest manner for emerging economies. |
| Keywords: | FDI, environmental regulation, economic geography, pollution haven hypothesis. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00344845_v1&r=reg |
| By: | Garcia, Alexis Arthur B.; Rejesus, Roderick M.; Genio, Emmanuel L. |
| Abstract: | This article examines factors influencing fishers' decision to support fishery regulations in coastal communities in the Philippines. Using the partial proportional odds variant of the ordered logit model, we show that higher education levels, implementation of regulatory ordinances, and the effectiveness of law enforcement significantly affect the likelihood of supporting fishery regulations in coastal communities. |
| Keywords: | Research Methods/ Statistical Methods, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saeaed:6791&r=reg |
| By: | Sonia Ondo-Ndong; Laurence Scialom |
| Abstract: | This paper attempts to analyse the main characteristics of the Northern Rock crisis and the responses of the Bank of England as lender of last resort. On the basis of the diagnosis about the causes and the handling of this banking crisis we detect the shortcomings prevailing in the UK prudential device. We therefore try to draw the prudential lessons of this experience. As we cannot claim to present an exhaustive picture of the crisis’s implications from a prudential point of view, we chose to focus instead on the points with practical significance far beyond the UK’s case. |
| Keywords: | bank bankruptcy, deposit insurance, liquidity regulation |
| JEL: | G38 G33 G32 G28 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2008-23&r=reg |
| By: | Andreas Stephan (Centre for Competition Policy, University of East Anglia) |
| Abstract: | A criminal offence requiring Ghosh dishonesty was introduced in the UK by the Enterprise Act 2002, primarily to enhance cartel deterrence as a complement to corporate fines. Yet the first convictions resulted from a US plea bargain in 2008. This paper identifies three obstacles to enhancing deterrence through the cartel offence. First, Norris v USA and a public survey suggest relatively weak perceptions of cartels persist in the UK. It was envisaged that convictions would remedy this, but prosecutors will continue to be very selective about the cases they bring to trial if there are doubts as to whether price fixing alone is viewed as objectively dishonest. Secondly, any increase in criminal enforcement risks discouraging leniency applications to the European Commission, because corporate immunity granted on the Community level does not automatically protect employees from criminal prosecution in national courts. There is also no conclusive mechanism for direct settlement, as there is in the US. Thirdly, sizeable benefits and purportedly low detection rates mean deterrence may be weak if custodial sentences do not become the norm. Further sanctions such as Director Disqualification Orders can play an important role in ensuring cartelists do not seek immediate reemployment at a high level. |
| Keywords: | cartel offence, deterrence, dishonesty, Enterprise Act 2002, Norris v USA |
| JEL: | K14 K21 L40 L41 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-19&r=reg |
| By: | Pinar Akman (Centre for Competition Policy, University of East Anglia) |
| Abstract: | The ultimate objective of EC competition rules is arguably the enhancement of ‘consumer welfare’. In EC competition law, however, ‘consumer’ merely means ‘customer’. Not being limited to final consumers, the concept also encompasses intermediate customers. Moreover, according to the EC Commission, under Article 82EC, harm to intermediate customers is generally presumed to create harm to consumers and where intermediate customers are not competitors of the dominant undertaking, there is no requisite to assess the effects of conduct on users further downstream. This paper questions the appropriateness of this presumption in light of recent advances in economics, specifically that of vertical restraints and in particular non-linear pricing. It uses this literature to show that there are many instances where an increase (decrease) in ‘customer welfare’ does not cause an increase (decrease) in ‘consumer welfare’. In these cases, the presumption is devoid of economic justification and likely to lead to decisional errors. The paper concludes that if the law is to serve the interests of ‘real’ consumers, the EC Commission should reconsider this presumption and its interpretation of the ‘consumer’ in ‘consumer welfare’. Until then, it remains questionable and objectionable whose interests EC competition law and in particular, Article 82EC, serve. |
| Keywords: | Article 82EC, abuse of dominance, consumer welfare, customer welfare, final consumers, intermediate customers |
| JEL: | K21 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-34&r=reg |
| By: | Milne , Alistair (Cass Business School); Wood, Geoffrey (Cass Business School) |
| Abstract: | In autumn of 2007 Britain experienced its first bank run of any significance since the reign of Queen Victoria. The run was on a bank called Northern Rock. This was extraordinary, for Britain had been free of such episodes because by early in the third quarter of the 19th century the Bank of England had developed techniques to prevent them. A second extraordinary aspect of the affair was that it was the decision to provide support for the troubled institution that triggered the run. And thirdly, unlike most runs in banking history, it was a run only on that one institution. This paper considers why the traditional techniques for the maintenance of banking stability failed – if they did fail – and then considers how these techniques may need to be changed or supplemented to prevent such problems in the future. The paper starts with a narrative of the events, then turns to banking policy before the event and to the policy responses after it. We suggest both why the decision to provide support triggered the run and why the run was confined to a single institution. That prepares the way for our consideration of what should be done to help prevent the recurrence of such episodes in the future. |
| Keywords: | bank failure; lender of last resort; money markets; bank regulation |
| JEL: | E42 E58 N24 |
| Date: | 2008–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2008_030&r=reg |
| By: | Michelle J. White |
| Abstract: | This paper discusses four bankruptcy-related policy issues. First, what is the economic rationale for having a bankruptcy procedure at all and what defines an economically efficient bankruptcy procedure? Second, why did the number of U.S. bankruptcy filings increase so dramatically between 1980 and 2005? Third, a major bankruptcy reform went into effect in the U.S. in 2005—what did it do and how did it affect credit and mortgage markets? Finally, the paper discusses the mortgage crisis, the high social cost of foreclosures, and the difficulty of avoiding foreclosure by voluntarily renegotiation of mortgage contracts, even when such renegotiations are in the joint interest of debtors and creditors. I also discuss the pros and cons of government programs to refinance mortgages and the possibility of giving bankruptcy judges new power to change the terms of mortgage contracts in bankruptcy. |
| JEL: | E44 K35 R31 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14549&r=reg |