nep-reg New Economics Papers
on Regulation
Issue of 2009‒04‒25
eleven papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. A Synthesis of Current Issues in the Labour Regulatory Environment By Haroon Bhorat; Carlene van der Westhuizen
  2. Oil in Colombia: History, Regulation and Macroeconomic Impact By Juan Carlos Echeverry; Jaime Navas; Verónica Navas; María Paula Gómez
  3. Green Serves the Dirtiest. On the Interaction between Black and Green Quotas By Christoph Böhringer and Knut Einar Rosendahl
  4. Credit Expansion and Banking Crises: The Role of Guarantees By Giorgio Calcagnini; Germana Giombini
  5. Entrepreneurial Equity Financing and Securities Regulation: An Empirical Analysis By Cécile Carpentier; Jean-Marc Suret
  6. Can Nuclear Power Supply Clean Energy in the Long Run? A Model with Endogenous Substitution of Resources By Chakravorty, Ujjayant; Magne, Bertrand; Moreaux, Michel
  7. Market Share, R&D Cooperation, and EU Competition Policy By Richard Rubble; Bruno Versaevel
  8. Corruption and Cross-Border Investment in Emerging Markets: Firm-Level Evidence By Beata S. Javorcik; Shang-Jin Wei
  9. Gaming in a benchmarking environment. A non-parametric analysis of benchmarking in the water sector By De Witte, Kristof; Marques, Rui
  10. The Canadian Public Venture Capital Market By Cécile Carpentier; Jean-Marc Suret
  11. Optimal Collusion with Limited Severity Constraint By Etienne Billette De Villemeur; Laurent Flochel; Bruno Versaevel

  1. By: Haroon Bhorat; Carlene van der Westhuizen (Development Policy Research Unit; Director and Professor)
    Abstract: During 2006 and 2007, a selection of research papers, in the main written by labour law experts, have provided critical input and guidance on the nature of the debate around the efficiency of the labour regulatory environment in South Africa. In November 2007, key stakeholders from government, labour and business attended a workshop on the Labour Regulatory Environment in South Africa at the Mount Grace Hotel, Magaliesberg, where the results of the aforementioned studies were presented and debated. Labour law experts generally agree that the current challenges in the regulatory environment have arisen disproportionately from the improper realisation of the labour market reforms introduced in the mid-1990s.
    Keywords: South Africa: labour regulation, Labour Regulatory Environment
    JEL: A1
    Date: 2009–02
  2. By: Juan Carlos Echeverry; Jaime Navas; Verónica Navas; María Paula Gómez
    Abstract: Colombia’s oil history began in 1918 and reached its golden era at the end of the 1980s. Regulation in the oil industry changed several times since 1974, mainly responding to the discoveries made. Although agreed contract terms have been honored for oil fields allocated in the past, regulation instability has affected long term the relationships with private investors, since new conditions were imposed for future contracts. Once too onerous conditions, too low prices and international competition drove investors away from the country, regulation was softened. Recently, the Colombian government has improved contractual terms and made tributary and royalty conditions more attractive to private investors. The important discoveries made in the last two decades led Colombia to an expenditure spiral, paired with a huge fiscal deficit and a high public debt, drastically changing a seven decade long record of fiscal stability. The cycle of cheap-expensive oil has exhibited a full swing, and although exploration contracts and investment have increased, no important discoveries have been made, revealing a complicated geology that might pose a challenge to the country’s hydrocarbons’ self-sufficiency.
    Date: 2009–03–12
  3. By: Christoph Böhringer and Knut Einar Rosendahl (Statistics Norway)
    Abstract: Tradable black (CO2) and green (renewables) quotas gain in popularity and stringency within climate policies of many OECD countries. The overlapping regulation through both instruments, however, may have important adverse economic implications. Based on stylized theoretical analysis and substantiated with numerical model simulations for the German electricity market, we show that a green quota imposed on top of a black quota does not only induce substantial excess cost but serves the dirtiest power technologies as compared to a black quota regime only.
    Keywords: Emissions Trading; Tradable Green Certificates; Overlapping Regulation
    JEL: D61 H21 H22 Q58
    Date: 2009–04
  4. By: Giorgio Calcagnini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)); Germana Giombini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy))
    Abstract: This paper aims at analysing whether banking changes that occurred in Italy in the last fifteen years have mined the soundness of its financial system. We look for potential threats to financial stability as a result of the dynamic behaviour of Italian banks that progressively have been favouring consumer households at the expense of firms in the allocation of credit. The theme of financial instability is closely linked to the question of capital regulation, which is a centrepiece of government intervention because it affects banks’ soundness and risk taking incentives. After reviewing the literature on capital regulation, we first discuss the role of guarantees as a solution to banks’ potential instability in the case of credit default and, secondly, we estimate a bank interest rate model that explicitly includes collateral and personal guarantees as explanatory variables. We show that banks follow different lending policies according to the type of customer. In the case of firms banks seem to efficiently screen and monitor customers and guarantees (real and personal) are both used to reduce moral hazard problems. In the case of consumer households and sole proprietorships banks behave “lazily” by replacing screening and monitoring activities with personal guarantees; instead, collateral is used to separate good from bad customers (i.e., to mitigate adverse selection problems). These results, together with the large proportion of bad loans in case of unsecured loans, may indicate the existence of potential sources of financial instability because (a) personal guarantees are a small share of loans, especially in the case of consumer households, (b) a decline in the value of collateral held by banks in the event of a housing market weakening.
    Keywords: Banking Crisis; Household and Firm Credit Growth; Banking Regulation.
    JEL: E44 G21 G28
    Date: 2009
  5. By: Cécile Carpentier; Jean-Marc Suret
    Abstract: Securities regulation generally restrains entrepreneurial ventures from entering the stock market, to protect investors. Scholars and regulators contend that strong rules and requirements for listing are essential to prevent the stock market from failing. However, these constraints can also unduly impede the growth of new ventures. We use the exceptional case of Canada to examine the effects of the relaxation of regulatory constraints. In this country, firms can use the reverse takeover technique to list at a very early stage, without revenues, with a minimal size and even without writing a prospectus. This situation provides a unique opportunity to examine entrepreneurial ventures listed on a public market. The quality of firms, along with their post-listing operating performance and strategy, fate and market returns largely reinforce the view that strong listing requirements are essential. Easing these constraints does not seem to lead many good firms to growth and success. <P>La réglementation des valeurs mobilières interdit généralement l’accès au marché boursier des entreprises en démarrage, afin de protéger les investisseurs. Des universitaires et les organismes de réglementation prétendent que des règles strictes et des exigences fortes sont nécessaires pour éviter l’échec du marché. Toutefois, ces contraintes peuvent limiter de façon exagérée les possibilités de croissance des entreprises émergentes. Nous exploitons la situation très particulière du Canada pour étudier l’effet du relâchement des contraintes réglementaires. Dans ce pays, les entreprises émergentes peuvent entrer en Bourse au moyen de prises de contrôle inverses, alors qu’elles ne rapportent pas de revenus et présentent une capitalisation minime. Elles peuvent même échapper à l’obligation de préparer un prospectus. Cette situation permet d’étudier des entrepreneurs inscrits sur un marché public d’actions. La qualité des entreprises, de même que leur performance après l’accès en Bourse et leur stratégie indiquent qu’il semble nécessaire de maintenir des exigences élevées. Leur relâchement ne semble pas correspondre à l’accès en Bourse d’entreprises de qualité orientées vers la croissance et le succès.
    Keywords: securities regulation, entrepreneurial ventures, equity financing, reverse takeover, public policy., réglementation des valeurs mobilières, entrepreneurs, entreprises émergentes, émissions d’actions, prise de contrôle inversée, politique publique.
    Date: 2009–04–01
  6. By: Chakravorty, Ujjayant (University of Alberta, Department of Economics); Magne, Bertrand (Paul Scherer Institut); Moreaux, Michel (Toulouse School of Economics)
    Abstract: This paper models nuclear energy by developing a dynamic model with endogenous substitution among polluting nonrenewable resources. Nuclear power can reduce the cost of generating clean energy significantly. However, continued expansion of nuclear capacity at historical rates is likely to cause a scarcity of uranium and make nuclear power costlier than other energy sources within a few decades. Renewables such as solar, wind and biomass, clean coal and next generation nuclear power may supply significant amounts of clean energy late this century. The cost of generating low carbon energy increases sharply if global carbon concentration targets are set at 450 ppm instead of 550 ppm. A policy implication is that the current political and regulatory impediments to the expansion of nuclear power generation may prove to be costly in a post-Kyoto world.
    Keywords: energy resources; environmental regulation; global warming; hotelling models; resource substitution
    JEL: Q32 Q41 Q48
    Date: 2009–04–16
  7. By: Richard Rubble (EMLYON Business School - EMLYON Business School); Bruno Versaevel (EMLYON Business School - EMLYON Business School, GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: Current EU policy exempts horizontal R&D agreements from antitrust con- cerns when the combined market shares of participants are low enough. This paper argues that existing theory does not support limiting the exemption to low market shares. This is done by introducing a set of non-innovating outside ï¬rms to the standard framework to assess what link might exist between the market share of innovating ï¬rms and the product market beneï¬ts of cooperation. With R&D output choices, the market share criterion, while it rules out the most socially harmful R&D cooperation agreements, also hinders the most beneï¬cial ones. With R&D input choices, cooperation may actually be desirable in concentrated industries, and harmful in more competitive ones. If R&D cooperation does have anti-competitive effects in product markets, it seems that these are therefore best addressed by other tools than market share criteria.
    Keywords: R&D; Cooperation; Competition; Regulation
    Date: 2009
  8. By: Beata S. Javorcik (University of Oxford); Shang-Jin Wei (Columbia University)
    Abstract: This paper studies the impact of corruption in emerging markets on the mode of entry and volume of inward foreign direct investment using a unique firm-level data set. It examines two effects of corruption simultaneously: a reduction in the volume of foreign investment and a shift in the ownership structure. Corruption makes local bureaucracy less transparent and hence acts as a tax on foreign investors. Moreover, corruption affects the decision to take on a local partner. On the one hand, corruption increases the value of using a local partner to cut through the bureaucratic maze. On the other hand, corruption decreases the effective protection of investor's intangible assets and lowers the probability that disputes between foreign and domestic partners will be adjudicated fairly, which reduces the value of having a local partner. The importance of protecting intangible assets increases with investor's technological sophistication, which tilts the preference away from joint ventures in a corrupt country. Empirical evidence shows that corruption reduces inward FDI and shifts the ownership structure towards joint ventures. Technologically more advanced firms are found to be less likely to engage in joint ventures.
    Keywords: Corruption, Developing Countries, Multinational Firms
    JEL: F23
    Date: 2009–02
  9. By: De Witte, Kristof; Marques, Rui
    Abstract: This paper discusses the use of benchmarking in general and its application to the drinking water sector. It systematizes the various classifications on performance measurement, discusses some of the pitfalls of benchmark studies and provides some examples of benchmarking in the water sector. After presenting in detail the institutional framework of the water sector of the Belgian region of Flanders (without benchmarking experiences), Wallonia (recently started a public benchmark) and the Netherlands (introduced already in 1997 a public benchmark), we non-parametrically measure the productivity gains by the use of a dynamic Malmquist index. The three regions, each at a different stage of the benchmarking circle, exhibit different performance trends. The ‘carrot’ and the ‘stick’ of benchmarking seem to offer an effective incentive to trigger performance. In addition, the Malmquist decompositions provide some evidence on the ‘gaming’ of the stakeholders by the water utilities.
    Keywords: Benchmarking; gaming; Malmquist decomposition; regulation; water sector.
    JEL: C14 L95
    Date: 2009–04–12
  10. By: Cécile Carpentier; Jean-Marc Suret
    Abstract: We describe and analyze how a stock exchange can be used to finance emerging companies and to assume the role usually played by private VCs. We find that the Canadian public VC market has a success rate which is approximately four times the corresponding rate for private VC. The public VC market provides approximately seven times as many new listings to the main market as private VCs. For a five-year horizon, the delisting rate of newly listed companies is much lower than the failure rate observed for the private VC sector in Canada. Finally, the comparison of the returns shows that the public VC market outperforms the private one. We conclude that a public VC market is indeed able to compete with a private one, even if it does not have the tools, skills and value added capabilities usually attributed to private VCs. <P>Nous décrivons et analysons l’utilisation d’un marché boursier pour le financement d’entreprises émergentes, alors que ce rôle est généralement dévolu aux investisseurs en capital de risque (le capital de risque privé). Le taux de succès de ce marché public de capital de risque Canadien est prés de quatre fois supérieur à celui mesuré pour le marché privé. Au Canada, le marché public amène sept fois plus de nouvelles inscriptions sur le marché principal, le TSX, que ne le fait le capital de risque privé. Pour un horizon de cinq ans, le taux de disparition des entreprises nouvellement inscrites sur la Bourse de croissance est beaucoup moindre que le taux d’échec rapporté par le capital de risque. Enfin, le rendement du marché public est largement supérieur à celui du marché privé du capital de risque. Nous en déduisons que le marché public du capital de risque est parfaitement capable de concurrencer le marché privé, même s’il ne dispose pas des outils, habiletés et moyens d’ajout de valeur que l’on associe généralement au capital de risque conventionnel.
    Keywords: Venture Capital, small business, stock market, Canada, securities regulation, public policy., Capital de risque, petites et moyennes entreprises, marché boursier, Canada, réglementation des valeurs mobilières, politiques publiques.
    Date: 2009–04–01
  11. By: Etienne Billette De Villemeur (GREMAQ - Groupe de recherche en économie mathématique et quantitative - CNRS : UMR5604 - Université des Sciences Sociales - Toulouse I - Ecole des Hautes Etudes en Sciences Sociales); Laurent Flochel (CRA - Charles River Associates International - Charles River Associates International); Bruno Versaevel (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: Collusion sustainability depends on ï¬rms' aptitude to impose sufficiently severe punishments in case of deviation from the collusive rule. We characterize the ability of oligopolistic ï¬rms to implement a collusive strategy when their ability to punish deviations over one or several periods is limited by a severity constraint. It captures all situations in which either structural conditions (the form of payoff functions), institutional circumstances (a regulation), or ï¬nancial considerations (proï¬tability requirements) set a lower bound to ï¬rms' losses. The model speciï¬cations encompass the structural assumptions (A1-A3) in Abreu (1986) [Journal of Economic Theory, 39, 191-225]. The optimal punishment scheme is characterized, and the expression of the lowest discount factor for which collusion can be sustained is computed, that both depend on the status of the severity constraint. This extends received results from the literature to a large class of models that include a severity constraint, and uncovers the role of structural parameters that facilitate collusion by relaxing the constraint.
    Keywords: Collusion ; Oligopoly ; Penal codes
    Date: 2009

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.