nep-reg New Economics Papers
on Regulation
Issue of 2009‒01‒03
eleven papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Wages, Efficiency and Labor Market Regulation in An Inflationary Environment By Guillermo Tomás Málaga
  2. Fund level disclosure of APRA superannuation statistics collection By Australian Prudential Regulation Authority
  3. Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism? By Claudio Borio; Sahminan Haibin Zhu
  4. Does Planning Regulation Protect Independent Retailers? By Raffaella Sadun
  5. Using Cost Observation to Regulate Bureaucratic Firms By Ana Pinto Borges; João Correia-da-Silva
  6. Price Regulation of Pluralistic Markets Subject to Provider Collusion By Roberta Longo; Marisa Miraldo; Andrew Street
  7. Productivity Growth in Canadian and U.S. Regulated Industries By Gu, Wulong; Lafrance, Amélie
  8. A Primer on Financial System Meltdown. The Economists' View By Franz R. Hahn
  9. Evidence of Improved Monitoring and Insolvency Resolution after FDICIA By Edward J. Kane; Rosalind Bennett; Robert Oshinsky
  10. The Impact of a Corporate Leniency Program on Antitrust Enforcement and Cartelization By Myong-Hun Chang; Joseph E. Harrington, Jr.
  11. Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ? By Christian Calmès; Raymond Théoret

  1. By: Guillermo Tomás Málaga
    Date: 2008–10–16
  2. By: Australian Prudential Regulation Authority (Australian Prudential Regulation Authority)
    Abstract: Fund level disclosure of APRA superannuation statistics collection
    Date: 2008–12–08
  3. By: Claudio Borio; Sahminan Haibin Zhu
    Abstract: Few areas of monetary economics have been studied as extensively as the transmission mechanism. The literature on this topic has evolved substantially over the years, following the waxing and waning of conceptual frameworks and the changing characteristics of the financial system. In this paper, taking as a starting point a brief overview of the extant work on the interaction between capital regulation, the business cycle and the transmission mechanism, we offer some broader reflections on the characteristics of the transmission mechanism in light of the evolution of the financial system. We argue that insufficient attention has so far been paid to the link between monetary policy and the perception and pricing of risk by economic agents - what might be termed the "risk-taking channel" of monetary policy. We develop the concept, compare it with current views of the transmission mechanism, explore its mutually reinforcing link with "liquidity" and analyse its interaction with monetary policy reaction functions. We argue that changes in the financial system and prudential regulation may have increased the importance of the risk-taking channel and that prevailing macroeconomic paradigms and associated models are not well suited to capturing it, thereby also reducing their effectiveness as guides to monetary policy.
    Keywords: risk-taking channel, transmission mechanism, capital regulation, procyclicality
    Date: 2008–12
  4. By: Raffaella Sadun
    Abstract: Entry regulations against big-box retailers have been introduced in many countries to protectsmaller independent stores. Using a new dataset from the UK, I show that in fact these entryregulations have been associated with greater employment declines in independent storesthey were meant to protect. The reason is that when large retail chains are prevented fromentering a new area with a big-box store, they typically enter instead using a smaller in-townstore format. These smaller format stores compete more directly with independent stores. Tocausally identify this impact I use the changing nature of local political control in the UKfrom 1993 to 2003. Since local politicians directly control planning regulation in the UK, andpolitical parties have very different views on the ideal amount of planning control, thisprovides exogenous variation in the ease of entry for big-box retailers. I estimate that 15% ofthe employment decline experienced by independent retailers between 1998 and 2004 can beattributed to the perverse effect of planning regulation.
    Keywords: Zoning, Location, Retail, Regulation
    JEL: K2 L10 L81 L51
    Date: 2008–08
  5. By: Ana Pinto Borges (Faculdade de Economia, Universidade do Porto); João Correia-da-Silva (CEMPRE and Faculdade de Economia, Universidade do Porto)
    Abstract: We study regulation of a bureaucratic provider of a public good in the presence of moral hazard and adverse selection. By bureaucratic we mean that it values output in itself, and not only profit. Three different financing systems are studied - cost reimbursement, prospective payment, and the optimal contract. In all cases, the output level increases with the bureaucratic bias. We find that the optimal contract is linear in cost (fixed payment plus partial cost-reimbursement). A stronger preference for high output reduces the tendency of the firm to announce a high cost (adverse selection), allowing a more powered incentive scheme (a lower fraction of the costs is reimbursed), which alleviates the problem of moral hazard.
    Keywords: Procurement, Regulation, Adverse selection, Moral hazard, Bureaucracy
    JEL: D82 H41 H51 I11
    Date: 2008–12
  6. By: Roberta Longo (Dipartimento di Teoria Economica e Metodi Quantitativi per le Scelte Politiche, University La Sapienza of Rome, Piazzale Aldo Moro 5, 00185 Roma, Italy and Centre for Health Economics, University of York); Marisa Miraldo (Imperial College Business School, Imperial College of London, South Kensington Campus, London SW7 2AZ UK); Andrew Street (Centre for Health Economics, University of York, UK)
    Abstract: We analyse incentives for collusive behaviour when heterogeneous providers are faced with regulated prices under two forms of yardstick competition, namely discriminatory and uniform schemes. Providers are heterogeneous in the degree to which their interests correspond to those of the regulator, with close correspondence labelled altruism. Deviation of interests may arise as a result of de-nationalisation or when private providers enter predominantly public markets. We assess how provider strategies and incentives to collude relate to provider characteristics and across different market structures. We differentiate between “pure” markets with either only self-interested providers or with only altruistic providers and “pluralistic” markets with a mix of provider type. We find that the incentive for collusion under a discriminatory scheme increases in the degree to which markets are self-interested whereas under a uniform scheme the likelihood increases in the degree of provider homogeneity. Providers’ choice of cost also depends on the yardstick scheme and market structure. In general, costs are higher under the uniform scheme, reflecting its weaker incentives. In a pluralistic market under the discriminatory scheme each provider’s choice of cost is decreasing in the degree of the other provider’s altruism, so a self-interested provider will operate at a lower cost than an altruistic provider. Under the uniform scheme providers always choose to operate at the same cost. The prospect of defection serves to moderate the chosen level of operating cost.
    Keywords: Price regulation; yardstick competition; collusion; altruism.
    JEL: I1 I18 L33
    Date: 2008–12
  7. By: Gu, Wulong; Lafrance, Amélie
    Abstract: This paper compares the productivity growth of a set of Canadian and U.S. regulated industries.. Using data from Statistics Canada's KLEMS database and the U.S. Bureau of Economic Analysis, the paper examines productivity growth in transportation services (which includes air and rail), broadcasting and telecommunications, and financial services (which includes financial intermediation and insurance), over the period from 1977 to 2003. The majority of these provide the foundational networks on which other industries rely. These sectors were quite heavily regulated in Canada at the beginning of the period of study (1977), experienced partial deregulation during the period and still faced various types of regulation at the end (2003). Deregulation also occurred in the United States, but regulation has generally been less restrictive there over most of the period. The evidence shows that many of the Canadian industries that underwent deregulation experienced faster labour productivity growth and multifactor productivity growth than did the aggregate Canadian business sector and had similar or higher productivity growth than did their counterparts in the United States over the 1977-to-2003 period. Those industries include rail transportation, broadcasting and telecommunications, financial intermediation and insurance carriers. The airline industry had slower productivity growth in Canada than in the United States over the 1977-to-2003 period.
    Keywords: Economic accounts, Productivity accounts
    Date: 2008–11–26
  8. By: Franz R. Hahn
    Abstract: Ideologues are quick to explain the current financial meltdown: it's the markets, stupid. Economists agree but add: it's politics too, stupid. Ideologues agree but counter: first and foremost it's capitalism, stupid. Economists agree but reply: §$%&?!, stupid. This is where this short paper takes us: it makes an attempt to give a brief overview of the economists' views on the ongoing financial system crisis explaining "§$%&?!, stupid".
    Keywords: financial system crisis, systemic risk, macroeconomic stability, financial regulation
    Date: 2008–12–01
  9. By: Edward J. Kane; Rosalind Bennett; Robert Oshinsky
    Abstract: To realign supervisory and market incentives, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) adjusts two principal features of federal banking supervision. First, it requires regulators to examine insured institutions more frequently and makes them accountable for exercising their supervisory powers. Second, the Act empowers regulators to wind up the affairs of troubled institutions before their accounting net worth is exhausted. Using 1984–2003 data on the outcome of individual bank examinations, this paper documents that the frequency of rating transitions and the character of insolvency resolutions have changed substantially under FDICIA. The average interval between bank examinations has dropped for low-rated banks in the post-FDICIA era. Examiner upgrades have become significantly more likely in the post-FDICIA era even after controlling for the state of the economy. However, in recessions managers are slower to correct problems that examiners identify. As a result, during downturns upgrades become less likely and absorptions become more likely. Giving the FDIC authority to wind up troubled banks before their tangible net worth is exhausted has reduced the role of government in the insolvency-resolution process. Consistent with an hypothesis that FDICIA has improved incentives, our data show that a markedly larger percentage of troubled banks now search for a merger partner rather than trying to stay in business until the regulators force them to fail. This greater reliance on quasi-voluntary mergers is observable both within and across various stages of the business cycle. These findings suggest that supervisory interventions became more effective at banks during the post-FDICIA era.
    JEL: G21 G28 P51
    Date: 2008–12
  10. By: Myong-Hun Chang; Joseph E. Harrington, Jr.
    Abstract: To explore the efficacy of a corporate leniency program, a Markov process is constructed which models the stochastic formation and demise of cartels. Cartels are born when given the opportunity and market conditions are right, while cartels die because of internal collapse or they are caught and convicted by the antitrust authority. The likelihood that a cartel, once identified, is convicted depends inversely on the caseload of the antitrust authority due to an implicit resource constraint. The authority also chooses an enforcement policy in terms of the fraction of non-leniency cases that it prosecutes. Using numerical analysis, the impact of a leniency program on the steady-state cartel rate is investigated. Holding the enforcement policy of the antitrust authority fixed, a leniency program lowers the frequency of cartels. However, the additional caseload provided by the leniency program induces the antitrust authority to prosecute a smaller fraction of cartel cases identified outside of the program. Because of this less aggressive enforcement policy, it is possible that the cartel rate is higher when there is a leniency program.
    Date: 2008–12
  11. By: Christian Calmès (Département des sciences administratives, Université du Québec (Outaouais), et LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle)
    Abstract: We provide new evidence of a worsening of the risk-return trade-off in Canadian banking. Surging OBS activities have led to increasingly volatile net operating revenues, and might have reduced well-known measures of bank profitability, like return on assets and return on equity. In this context, a natural question arises: should we re-regulate? On this matter, we confirm Calmès(2003) prediction: a maturation process took place after 1997. Using a new approach based on ARCH-M estimation, we find that an additional risk premium has emerged. In this sense, there is no need to re-regulate.
    Keywords: ARCH-M Models, risk premium, financial stability
    JEL: G20 G21
    Date: 2008–10–20

This nep-reg issue is ©2009 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.