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on Regulation |
| By: | Joshua Aizenman |
| Abstract: | This paper illustrates the paradox of prudential under-regulation in an economy that adopts financial reform, a reform which exposes the economy to future financial crises. There is individual-uncertainty about the crisis incidence, and the probability of the crisis is updated sequentially applying Bayesian inference. Costly regulation can mitigate the probability of the crisis. We identify conditions where the regulation level supported by the majority is positive after the reform, but below the socially optimal level. Tranquil time, when the crisis would not take place, reduces the regulation intensity. If the spell of no crisis is long enough, the regulation level may drop to zero, despite the fact that the socially optimal regulation level remains positive. The less informative is the prior regarding the probability of a crisis, the faster will be the drop in regulations induced by a no-crisis, good luck run. The challenges facing the regulator are aggravated by asymmetric information, as is the case when the public does not observe regulator’s effort. Higher regulator effort, while helping avoiding a crisis, may be confused as a signal that the environment is less risky, reducing the posterior probability of the crisis, eroding the support for costly future regulation. The other side of the regulation paradox is that crisis resulting with unanticipated high costs may induce over-regulation and stagnation, as the parties that would bear the cost of the over regulation are underrepresented in the decision making process. We also outline a regulatory structure that mitigates the above concerns, including information disclosure; increasing the independence of the regulatory agency from the political process; centralizing the regulatory process and increasing its transparency; and adopting global standards of minimum prudential regulations and information disclosure, enforced by the domestic regulator. |
| JEL: | F02 F15 F36 F42 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15018&r=reg |
| By: | Unal Zenginobuz; Haldun Evrenk |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:bou:wpaper:2009/01&r=reg |
| By: | Renaud Bourlès (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579, Université Toulouse 1 - Université Toulouse 1); Dominique Henriet (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579) |
| Abstract: | The aim of this paper is to analyze the need for capital and default regulation in insurance. Proponents of deregulation argue that these requirements are useless as insurers would hold enough capital as soon as the insured are fully informed about their default probability. Adding to the purpose the relationship between an insurer and her security holders (that is the issuance and dividend policy) we show that the second best capital reserve decided by the security holders is suboptimal whenever the return on cash inside the firm is smaller than outside. Because of limited commitment on recapitalization, disclosure of information may not be enough. Given these characteristics, State commitment to recapitalize could be an alternative regulation policy. |
| Keywords: | insurance, capital reserve, regulation, recapitalization |
| Date: | 2009–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00386453_v1&r=reg |
| By: | M.ª de los Llanos Matea (Banco de España); Juan S. Mora (Banco de España) |
| Abstract: | The literature points out that retail trade regulations may have a significant impact on prices, employment and productivity. In the case of Spain, the retail trade sector is subject to a rich set of regional regulations. This paper provides a database and a set of indicators on the main restrictions to retail trade in place in Spain’s Autonomous Regions (Comunidades Autónomas) between 1997 and 2007. Those restrictions bear on the following regulatory aspects: shopping hours, blue laws, seasonal discounts, definitions of "big" stores, licensing of discount stores, moratoria in retail trade licence issuing and taxes on big stores. The paper presents then an aggregate indicator constructed on the basis of these restrictions using factor analysis. Finally, this research estimates the effect of the commercial restrictiveness (using the aggregate indicator) among the regions on the commercial density, the number of employees of the sector and the rate of inflation. For that, panel data techniques are applied to the analysis. On the one hand, the results of this research point to an increase in the level of regulation throughout the period. On the other hand the estimates show that an increase in the level of restrictiveness increases commercial density and inflation among the regions but diminishes the number of persons employed in the sector. In either case, the results of this research must be taken with care due to the limitations of the regulation indicator studied and the limited availability of data for the period under study. |
| Keywords: | Regulation in services markets, barriers to entry, retailing, blue laws |
| JEL: | K23 L81 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0908&r=reg |
| By: | Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre) |
| Abstract: | In international emissions trading schemes such as the Kyoto Protocol and the European Union Emissions Trading Scheme, the suboptimal negotiation of the cap with respect to total pollution minimization leads us to critically examine the proposition that generous allocation of grandfathered permits by the regulator based on recent emissions might pave the way for dominant positions. Stemming from this politically given market imperfection, this chapter develops a differential Stackelberg game with two types of non cooperative agents: a large potentially dominant agent, and a competitive fringe whose size are exogenously determined. The strategic interactions are modeled on an intra-industry permits markets where agents can freely bank and borrow permits. This chapter contributes to the debate on initial permits allocation and market power by focusing on the effects of allowing banking and borrowing. A documented appraisal on whether or not such provisions should be included is frequently overlooked by the debate to introduce the permits market itself among other environmental regulation tools. Numerical simulations provide a quantitative illustration of the results obtained. |
| Keywords: | Emissions Trading; Banking; Borrowing; Market Power. |
| Date: | 2009–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00388207_v1&r=reg |
| By: | Laura Cavallo (Prime Minister Office, Italy); Giuseppe Coco (University of Bari and Prime Minister Office.); Mario Martelli (University of Milan and Prime Minister Office, Italy) |
| Abstract: | A methodology to measure administrative burdens, based on the Dutch Standard Cost Model (SCM), has been applied in a large number of European countries, coupled in most cases with the commitment to a reduction target. This paper compares the application of the method in different national context and discusses its weaknesses and strengths against more complete forms of evaluation of the adequacy of regulation. The paper also discusses some indication arisen during the measurement of administrative burdens through SCM in Italy. Our main conclusion is that the SCM is a potentially useful tool and could provide motivation for culture change in policymaking. Its major strength, which lies mainly in its pragmatic approach and the possibility of commitment on a quantitative target, may be at the same time a source of weakness and may deliver some misleading results. Also some basic concepts of the model need a more rigorous definition to be consistently applied in different countries. |
| Keywords: | administrative burdens, better regulation, costs of regulation, European governance, standard cost model. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:bai:series:wp0023&r=reg |
| By: | Gonzalez, Aldo; Benitez, Daniel |
| Abstract: | The authors compare the two merger control systems currently employed worldwide: a mandatory system based on merger size threshold and a voluntary system with ex-post monitoring and fines. The voluntary system possesses two informational advantages: (i) the enforcement agency employs more information -verifiable and non verifiable parameters- to decide the set of mergers to investigate, and (ii) the first move of merging firms reveals useful information to the agency about the competitive risk of a merger. If fines for undue omission to notify are upward limited, then a mixed mechanism is optimal, where small transactions are under a voluntary regime while the big mergers are obliged to report. Remedies for fixing anticompetitive mergers act as an instrument that induces firms to notify the operation, improving further the advantage of the voluntary mechanism. |
| Keywords: | Microfinance,Bankruptcy and Resolution of Financial Distress,Corporate Law,Economic Theory&Research,Small Scale Enterprise |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4936&r=reg |
| By: | Rosendahl, Knut Einar; Strand, Jon |
| Abstract: | The Clean Development Mechanism (CDM) is an offset mechanism designed to reduce the overall cost of implementing a given global target for greenhouse gas (GHG) emissions in industrialized"Annex B"countries of the Kyoto Protocol. This paper discusses various ways in which CDM projects do not imply full offset of emissions, thus leading to an overall increase in global GHG emissions when considering the Annex-B emissions increase allowed by the offsets. The authors focus on two ways in which this may occur: baseline manipulation; and leakage. Baseline manipulation may result when agents that carry out CDM projects have incentives to increase their initial (or baseline) emissions in order to optimize the value of CDM credits. Leakage occurs because reductions in emissions under a CDM project may affect market equilibrium in local and/or global energy and product markets, and thereby increase emissions elsewhere. Remedies against these problems are discussed. Such remedies are more obvious for the baseline problem (where one is simply to choose an exogenous baseline independent of the project) than for the leakage problem (which is difficult to prevent, and where a prediction of the effect must rely on information about overall market equilibrium effects). |
| Keywords: | Energy Production and Transportation,Environmental Economics&Policies,Environment and Energy Efficiency,Energy and Environment,Transport Economics Policy&Planning |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4931&r=reg |