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on Regulation |
| By: | Rainer Nitsche (ESMT European School of Management and Technology); Lars Wiethaus (ESMT European School of Management and Technology) |
| Abstract: | This paper analyses how different types of access regulation to next generation networks affect investments and consumer welfare. The model consists of an investment stage with uncertain returns and subsequent quantity competition. The access price is a function of investment costs and the regulatory regime. A regime with fully distributed costs or a regulatory holiday induces highest investments, followed by risk-sharing and long-run-incremental cost regulation. Risk-sharing creates most consumer welfare, followed by regimes with fully distributed costs, long-run-incremental costs and regulatory holiday, respectively. Risk-sharing benefits consumers as it combines relatively high ex-ante investment incentives with strong ex-post competitive intensity. |
| Keywords: | regulation, competition, telecommunications, broadband, strategic investment |
| JEL: | L51 L96 L10 K23 |
| Date: | 2009–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-09-003&r=reg |
| By: | Carlo Scarpa (University of Brescia); Giacomo Calzolari (University of Bologna) |
| Abstract: | We study the regulation of a firm which supplies a regulated service while also operating in a competitive, unregulated sector. If the firm conducts its activities in the two markets jointly, it enjoys economies of scope whose size is the firm’s private information, unknown either to the regulator or to the rival firms. We characterize the unregulated market outcome (with price and quantity competition) and optimal regulation that involves an informational externality to the competitors. Although joint conduct of the activities generates scope economies, it also entails private information, so that regulation is less efficient and the unregulated market too may be adversely affected. Nevertheless, we show that allowing the firm to integrate productions is (socially) desirable, unless joint production is characterized by dis-economies of scope. |
| Keywords: | Regulation, Competition, Asymmetric Information, Conglomerate Firms, Multiutility, Scope Economies, Informational Externality |
| JEL: | L51 L43 L52 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.55&r=reg |
| By: | Pollitt, M.G. |
| Abstract: | The purpose of this paper is to examine the lessons from the recent history of telecoms deregulation for the electricity (and by implication heat) network regulation. We do this in the context of Ofgem’s RPIX@ 20 Review of energy regulation in the UK, which considers whether RPI-X based price regulation is fit for purpose after over 20 years of operation in energy networks. We examine the deregulation of fixed line telecoms in the UK and the lessons which it seems to suggest. We then apply the lessons to electricity networks in the context of a possible increase in distributed generation directly connected to local distribution networks. We conclude that there is the possibility of more parallels over time and suggest several implications of this for the regulation of electricity and heat networks. |
| Keywords: | electricity, network regulation, distributed generation |
| JEL: | L51 L98 |
| Date: | 2009–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0925&r=reg |
| By: | Susanne Prantl (Department Wirtschaftszentrum Berlin and IFS); Alexandra Spitz-Oener (Humboldt University Berlin) |
| Abstract: | We analyze how an entry regulation that imposes a mandatory educational standard affects entry into self-employment and occupational mobility. We exploit the German reunification as a natural experiment and identify regulatory effects by comparing differences between regulated occupations and unregulated occupations in East Germany with the corresponding differences in West Germany after reunification. Consistent with our expectations, we find that entry regulation reduces entry into selfemployment and occupational mobility after reunification more in regulated occupations in East Germany than in West Germany. Our findings are relevant for transition or emerging economies as well as for mature market economies requiring large structural changes after unforeseen economic shocks. |
| Keywords: | Entry Regulation,Self-Employment, Occupational Mobility |
| JEL: | J24 J62 K20 L11 L51 M13 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:267&r=reg |
| By: | Brophy Haney, A.; Pollitt, M.G. |
| Abstract: | Incentive regulation for networks has been an important part of the reform agenda in a number of countries. As part of this regulatory process, incentives are put in place to improve the cost efficiency of network companies by rewarding good performance relative to a predefined benchmark. The techniques used to establish benchmarks are central to the efficiency improvements that are ultimately achieved. Much experience has been gained internationally in the application of benchmarking techniques and we now have a solid understanding of the main indicators of best practice. These include the use of frontier-based methods; a large and high quality dataset; panel data; and bootstrapping techniques. What we are lacking is a more complete understanding of the factors that influence choice of methods by regulators, i.e. characteristics that may encourage or discourage regulators to adopt best practice methods. |
| Keywords: | Electricity; Gas; Benchmarking; Efficiency analysis; Incentive regulation; Energy networks |
| Date: | 2009–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0926&r=reg |
| By: | Michel Aglietta; Laurence Scialom |
| Abstract: | The global financial crisis has pinpointed the relevance and the virulence of systemic risk in modern innovative finance. It is grounded in the propensity of credit markets to drift to extremes in close correlation with asset price spikes and slumps. In turn, such a propensity is nurtured by the heuristic behaviour of market participants under severe uncertainty. While plagued by disaster myopia, market participants spread systemic risk. Such adverse conditions have been magnified by financial innovations that have made finance predatory and capable of capturing regulators to annihilate prudential policies. Malfunctioning in finance is so deep and disorders are so widespread that sweeping reforms are the order of the day, if financial stability is viewed as a primary public concern. In this paper we argue that macro prudential policy should be the linchpin of relevant reforms. Being a top-down approach, it impinges both upon monetary policy and micro prudential policy. Central banks should pursue a dual objective of price and financial stability. Bank supervisors should broaden their oversight on a much larger perimeter, encompassing all systematically important institutions. Counter cyclical capital provisions should be required and linked to the control of aggregate credit supply. Leveraged institutions without deposit base should be subject to incentives for a much stricter liquidity management. To stem regulatory capture, prompt corrective action should be enlarged in its scope and adapted to mark-to-market financial intermediaries. Implementing macro prudential policy entails institutional changes. Central banks, bank supervisors and other financial regulators need to work much closer than beforehand, because the spread of systemic risk is not deterred by institutional and geographical frontiers. The changes to make are particularly stringent in Europe, where national parochialism makes the resolution of orderly cross-border bank crisis all but impossible. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2009-29&r=reg |
| By: | Alfredo Gigliobianco (Bank of Italy, Structural Studies Department); Claire Giordano (Bank of Italy, Structural Studies Department); Gianni Toniolo (Duke University) |
| Abstract: | Between the 1880s and the 1930s, three "regulatory cycles" can be identified in Italy. In the underlying model, each financial crisis gives rise to a regulatory change, which is circumvented in due time by financial innovation, that can then contribute to the outbreak of a new financial crisis. In Italy, overtrading of the banks of issue in the 1880s contributed to the 1888-1894 financial crisis, which yielded regulation concerning only these banks and restricting their activity. The German-type universal banks, created at the turn of the century and unconstrained in their undertakings, were at the core of the 1907 and the 1921-1923 crises. These led to a banking law in 1926 which, however, was born obsolete, in that it was not aimed at regulating universal banking as it had developed until then, but it contained general provisions regarding the whole range of deposit-taking institutions. Finally, the evolutionary adaptation of the universal banks into holding companies, not taken into account by the preceding law, contributed to the 1931-1934 banking crisis, followed by the 1936 bank legislation. |
| JEL: | G28 N20 N40 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:confpa:confpa_gig_ton_gio&r=reg |
| By: | Andrea Beltratti; René M. Stulz |
| Abstract: | Though overall bank performance from July 2007 to December 2008 was the worst since at least the Great Depression, there is significant variation in the cross-section of stock returns of large banks across the world during that period. We use this variation to evaluate the importance of factors that have been discussed as having contributed to the poor performance of banks during the credit crisis. More specifically, we investigate whether bank performance is related to bank-level governance, country-level governance, country-level regulation, and bank balance sheet and profitability characteristics before the crisis. Banks that the market favored in 2006 had especially poor returns during the crisis. Using conventional indicators of good governance, banks with more shareholder-friendly boards performed worse during the crisis. Banks in countries with stricter capital requirement regulations and with more independent supervisors performed better. Though banks in countries with more powerful supervisors had worse stock returns, we provide some evidence that this may be because these supervisors required banks to raise more capital during the crisis and that doing so was costly for shareholders. Large banks with more Tier 1 capital and more deposit financing at the end of 2006 had significantly higher returns during the crisis. After accounting for country fixed effects, banks with more loans and more liquid assets performed better during the month following the Lehman bankruptcy, and so did banks from countries with stronger capital supervision and more restrictions on bank activities. |
| JEL: | G15 G18 G21 G32 G34 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15180&r=reg |
| By: | Ashima Goyal |
| Abstract: | In the context of the formation of G-20, the paper points out the absence of reform in the global financial architecture (GFA) after the East Asian crisis, and assesses factors that can improve the chances of real reform this time. A factual assessment of various causes advanced for the global crisis, puts the main responsibility on lax regulation. The paper summarizes the Chimerica debate and the blocks that have stalled progress in resolving the issue. It argues that symmetric and balanced reform, at individual country and international level, is required to remove the blocks. [WP-2009-004]. |
| Keywords: | east Asian, regulation, emerging markets, markets, Global Financial architecture, Crisis, G-20, Imbalances, Over-saving, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2130&r=reg |
| By: | Abay Mulatu (University of Manchester); Reyer Gerlagh (University of Manchester); Dan Rigby (University of Manchester); Ada Wossink (University of Manchester) |
| Abstract: | This paper estimates the effect of environmental regulation on industry location and compares it with other determinants of location such as agricultural, education and R&D country characteristics. The analysis is based on a general empirical trade model that captures the interaction between country and industry characteristics in determining industry location. The Johnson-Neyman technique is used to fully explicate the nature of the conditional interactions. The model is applied to data on 16 manufacturing industries from 13 European countries. The empirical results indicate that the pollution haven effect is present and that the relative strength of such an effect is of about the same magnitude as other determinants of industry location. A significant negative effect on industry location is observed only at relatively high levels of industry pollution intensity. |
| Keywords: | Pollution Haven Hypothesis, Comparative Advantage, Industry Location |
| JEL: | O14 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.2&r=reg |
| By: | Etienne Billette de Villemeur (Toulouse School of Economics, IDEI & GREMAQ, 21 allée de Brienne, 31000 Toulouse, France); Laurent Flochel (Charles River Associates International, 27 Avenue de l’opéra, 75001 Paris, France); Bruno Versaevel (EMLYON Business School & CNRS, GATE, 69134 Ecully cedex France) |
| Abstract: | Collusion sustainability depends on ï¬rms' aptitude to impose suffciently 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 consider- ations (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 |
| JEL: | C72 D43 L13 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0909&r=reg |
| By: | Jean Tirole (Toulouse School of Economics); Emmanuel Farhi (Department of Economics Harvard and TSE) |
| Abstract: | The paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy. When everyone engages in maturity transformation, authorities have little choice but facilitating refinancing. In turn, refusing to adopt a risky balance sheet lowers the return on equity. The key ingredient is that monetary policy is non-targeted. The ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage, while the distortion costs are to a large extent fixed. This insight has important consequences. First, banks choose to correlate their risk exposures. Second, private borrowers may deliberately choose to increase their interest-rate sensitivity following bad news about future needs for liquidity. Third, optimal monetary policy is time inconsistent. Fourth, macro-prudential supervision is called for. We characterize the optimal regulation, which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets. We establish the robustness of our insights when the set of bailout instruments is endogenous and characterize the structure of optimal bailouts. |
| Keywords: | Monetary Policy, Funding Liquidity Risk, Strategic Complementarities, Macro-Prudential Supervision |
| JEL: | E44 E52 G28 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.57&r=reg |
| By: | O. DE JONGHE |
| Abstract: | This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed. The heterogeneity in extreme bank risk is attributed to differences in the scope of non-traditional banking activities: non-interest generating activities increase banks’ tail beta. In addition, smaller banks and better-capitalized banks are better able to withstand extremely adverse conditions. These relationships are stronger during turbulent times compared to normal economic conditions. Overall, diversifying financial activities under one umbrella institution does not improve banking system stability, which may explain why financial conglomerates trade at a discount. |
| Keywords: | diversification, non-interest income, financial conglomerates, banking stability, extreme value analysis, tail risk |
| JEL: | G12 G21 G28 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:09/579&r=reg |
| By: | Agrawal, Ashwini K. |
| Abstract: | Recent studies have debated the impact of investor protection laws on firms’ corporate policies. I exploit the passage of state investor protection statutes (“blue sky laws”) in the U.S. in the early 20th century to estimate the effects of investor protection law on firm financing decisions and investment activity. Regression estimates indicate that the passage of investor protection statutes causes firms to pay out greater dividends, issue more equity, and grow in size. The introduction of investor protection law is also associated with improvements in operating performance and market valuations. Additional analysis suggests that alternative hypotheses for the measured changes in corporate policy and performance have limited explanatory power. Overall, the evidence is strongly supportive of theoretical models which predict that investor protection laws have a significant impact on firm financing and investment policy. |
| Keywords: | Corporate Governance; Investor Protection; Law and Finance; law; finance; empirical corporate finance; financial institutions; |
| JEL: | A1 G34 G0 G30 |
| Date: | 2009–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16351&r=reg |
| By: | Marc, GERMAIN (UNIVERSITE DE LILLE-3, Laboratoire EQUIPPE and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Henry, TULKENS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); Alphonse, MAGNUS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de MathŽmatique) |
| Abstract: | This article deals with cooperation issues in international pollution problems in a two dimensional dynamic framework implied by the accumulation of the pollutant and of the capital goods. Assuming that countries do reevaluate at each period the advantages to cooperate or not given the current stocks of pollutant and capital, and under the assumption that damage cost functions are linear, we deøne at each period of time a transfer scheme between countries, which makes cooperation better for each of them than non-cooperation. This transfer scheme is also strategically stable in the sense that it discourages partial coalitions. |
| Keywords: | stock pollutant, capital accumulation, international environmental agreements, dynamic core solution |
| JEL: | Q54 Q58 F42 F53 O21 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2009015&r=reg |
| By: | Danielle Venn |
| Abstract: | This paper presents updated estimates of the OECD employment protection indicators for 30 OECD countries and 10 emerging economies and considers important aspects of employment protection other than those provided in legislation. Collective agreements often contain provisions relating to employment protection, but in most OECD countries, severance pay and notice periods in collective agreements are similar to those set out in legislation. Where bargaining takes place largely outside individual firms at the national, regional or sectoral level and collective agreements include provisions substantially more generous to employees than those in legislation, they are incorporated into the OECD indicators. Many OECD countries exempt some groups of firms or workers from employment protection rules. Such exemptions have mixed success in promoting employment among exempted groups, but do not have a large impact on the accuracy of the OECD indicators. More than half of OECD countries have specialised courts or procedures to handle unfair dismissal cases, reducing the time taken to deal with cases and improving satisfaction with legal outcomes. Resolving disputes early (either through pre-court dispute resolution procedures or pre-trial conciliation) saves time and money compared with waiting for a court decision. More research and cross-country comparable data are needed on the efficiency of conciliation procedures and the cost of pursuing or defending dismissal cases.<BR>Cet article présente la mise à jour des estimations des indicateurs de la protection de l’emploi de l’OCDE pour 30 pays de l’OCDE et 10 pays émergents et examine les aspects important de la protection de l’emploi, autres que celles prévues dans la législation. Les conventions collectives comportent souvent des dispositions relatives à la protection de l’emploi, mais dans la plupart des pays de l’OCDE, les indemnités de cessation d’emploi et les délais de préavis prévus par les conventions collectives sont comparables à ceux stipulés par la législation. Lorsque la négociation collective se situe au niveau de la branche, au niveau régional ou au niveau national, et que les conventions collectives intègrent des dispositions sensiblement plus généreuses pour les salariés que celles inscrites dans la législation, il en est tenu compte dans les indicateurs de protection de l’emploi de l’OCDE. De nombreux pays de l'OCDE exemptent certains groupes d'entreprises ou de travailleurs de la protection de l'emploi. Ces dérogations ont un succès mitigé dans la promotion de l'emploi parmi les groupes exemptés, mais ils n'ont pas un grand impact sur la précision des indicateurs de l'OCDE. Plus de la moitié des pays de l’OCDE ont des juridictions ou des procédures spécialisées pour traiter les affaires de licenciement abusif, qui facilitent l’accès à la justice, réduisent les délais de procédure et améliorent la satisfaction quant aux résultats. Résoudre les conflits précocement (soit par des procédures précontentieuses de règlement des litiges, soit par une conciliation au stade de la mise en état) permet d’économiser du temps et de l’argent plutôt que d’avoir à attendre la décision d’une juridiction. De plus amples travaux de recherche sont nécessaires concernant l’efficience et l’effectivité des procédures de conciliation, encore qu’elles aient généralement beaucoup de succès auprès des parties à un différend. |
| JEL: | J52 J63 J65 K31 |
| Date: | 2009–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:89-en&r=reg |