nep-reg New Economics Papers
on Regulation
Issue of 2009‒11‒07
twelve papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Bank regulation and bank crisis By Sigbjørn Atle Berg; Øyvind Eitrheim
  2. The reform of UK financial regulation By Maximilian J. B. Hall
  3. Barriers to competition in Croatia : the role of government regulation By De Rosa, Donato; Madzarevic-Sujster, Sanja; Boromisa, Ana-Maria; Sonje, Velimir
  4. Concentration, Separation, and Dispersion: Economic Geography and the Environment By Michael Rauscher
  5. Microfinance tradeoffs : regulation, competition, and financing By Cull, Robert; Demirguc-Kunt, Asli; Morduch, Jonathan
  6. Structured Finance, Risk Management, and the Recent Financial Crisis By Georges Dionne
  7. Regulating a monopolist with unknown bureaucratic tendencies By Ana Pinto Borges; João Correia-da-Silva; Didier Laussel
  8. Employment Protection Legislation in Russia: Regional Enforcement and Labour Market Outcomes By Gimpelson, Vladimir; Kapeliushnikov, Rostislav; Lukiyanova, Anna
  9. Who survives ? the impact of corruption, competition and property rights across firms By Hallward-Driemeier, Mary
  10. Entrepreneurs, Legal Institutions and Firm Dynamics By Neus Herranz; Stefan Krasa; Anne P. Villamil
  11. Hierarchical contracting in grant decisions: ex-ante and ex-post evaluation in the context of the EURegional Policy By Michela Cella; Massimo Florio
  12. The Regulation of Migration in a Transition Economy: China’s Hukou System By Bao, Shuming; Bodvarsson, Örn B.; Hou, Jack W.; Zhao, Yaohui

  1. By: Sigbjørn Atle Berg (Norges Bank (Central Bank of Norway)); Øyvind Eitrheim (Norges Bank (Central Bank of Norway))
    Abstract: The Norwegian experiences of the past thirty years illustrate what we believe are two general tendencies in bank regulation. The first one is that a bank crisis will tend to focus regulators' minds and lead to stricter regulations. The second one is that cycles in regulation tend to interact with the economic cycle, in the sense that the rationale for strong regulation tends to become somewhat blurred when the economy is booming. These patterns appear in the Norwegian experience after the banking crisis of 1988-92, and they can presumably also be recognized in many other jurisdictions.
    Keywords: Banking crises, history of bank regulation, capital adequacy, Basel I & II
    JEL: G28 N44
    Date: 2009–10–21
  2. By: Maximilian J. B. Hall (Dept of Economics, Loughborough University)
    Abstract: Since the enactment of the new Banking Act in February 2009, with a new 'Special Resolution Regime' at its heart, the debate about how to reform the UK's financial regulatory and supervisory framework has intensified. A major catalyst for this was the publication of Lord Turner's 'Review' in March 2009, which was followed by the Government's White Paper on financial reform in July. The same month the Conservative Party revealed its own White Paper on the subject, with both the Bank of England and the Financial Services Authority contributing to the debate at frequent intervals. The purpose of this article is to review and analyse these documents and viewpoints before coming to a conclusion about the most appropriate way forward on the domestic financial regulatory front.
    Date: 2009–10
  3. By: De Rosa, Donato; Madzarevic-Sujster, Sanja; Boromisa, Ana-Maria; Sonje, Velimir
    Abstract: This paper examines product market policies in Croatia by benchmarking them to OECD countries and highlighting how policies that are more conducive to competition would stimulate a more efficient allocation of resources and, in consequence, facilitate convergence to higher income levels. OECD indicators of overall regulation in product markets indicate that Croatia’s policies in 2007 were generally more restrictive of competition than were the policies in OECD countries. This is especially true for policies concerned with the degree of state control of the economy and with barriers to entrepreneurship. Regulatory obstacles to trade and foreign direct investment, by contrast, are in line with those of pre-accession EuropeanUnion countries (Czech Republic, Hungary, Slovak Republic, and Poland in 2003, as well as Bulgaria and Romania in 2006), albeit well above the OECD average. Regulation of post, electricity, gas, telecoms, air, rail, and road transport, as estimated by the OECD energy transport and communication sectors indicator, is also less liberal than in the OECD, highlighting the positive knock-on effects for the rest of the economy that could derive from further liberalization of network industries.
    Keywords: Transport Economics Policy&Planning,Public Sector Regulation,Markets and Market Access,Regulatory Regimes,Emerging Markets
    Date: 2009–10–01
  4. By: Michael Rauscher (University of Rostock)
    Abstract: The paper investigates the spatial patterns of industrial location and environmental pollution in a new-economic-geography model. Factors of production and their owners are mobile, but factor owners are not required to live in the region in which their factors are employed. Under laisser-faire, a chase-and-flee cycle of location is possible: people, who prefer a clean environment, are chased by polluting industries, which want to locate geographically close to the market. Locational patterns under optimal environmental regulation include concentration, separation, dispersion and several intermediate patterns. Moreover, it is shown that marginal changes in environmental policy may induce discrete changes in locational patterns.
    Keywords: economic geography, migration, trade, pollution, environmental regulation
    JEL: Q52 Q56 Q58 R30 F12
    Date: 2009
  5. By: Cull, Robert; Demirguc-Kunt, Asli; Morduch, Jonathan
    Abstract: This paper describes important trade-offs that microfinance practitioners, donors, and regulators navigate. Drawing evidence from large, global surveys of microfinance institutions, the authors find a basic tension between meeting social goals and maximizing financial performance. For example, non-profit microfinance institutions make far smaller loans on average and serve more women as a fraction of customers than do commercialized microfinance banks, but their costs per dollar lent are also much higher. Potential trade-offs therefore arise when selecting contracting mechanisms, level of commercialization, rigor of regulation, and the extent of competition. Meaningful interventions in microfinance will require making deliberate choices - and thus embracing and weighing tradeoffs carefully.
    Keywords: Access to Finance,Debt Markets,Banks&Banking Reform,Emerging Markets,Rural Finance
    Date: 2009–10–01
  6. By: Georges Dionne
    Abstract: Structured finance is often mentioned as the main cause of the latest financial crisis. We argue that structured finance per se did not trigger the last financial crisis. The crisis was propagated around the world because of poor risk management such as agency problems in the securitization market, poor rating and pricing standards, rating agency incentives, lack of market transparency, the search for higher yields by top decision makers and the failure of regulators and central banks to understand the implications of the changing environment.
    Keywords: Structured finance, risk management, financial crisis, collateral debt obligation (CDO), asset back commercial paper (ABCP), rating, pricing, securitization, regulation of financial markets
    JEL: D81 D82 D86 E5 G12 G14 G32 G33
    Date: 2009
  7. By: Ana Pinto Borges (Faculdade de Economia, Universidade do Porto); João Correia-da-Silva (CEF.UP and Faculdade de Economia, Universidade do Porto); Didier Laussel (GREQAM, Université de la Méditerranée)
    Abstract: We determine the optimal contract for the regulation of a bureaucratic firm in the case in which the bureaucratic bias is firm's private information. We find that output is distorted upward when the bureaucratic bias is low, downward when it is high, and equals a reference output when it is intermediate (in this case, the participation constraint is binding). We also determine an endogenous reference output (equal to the expected output, which depends on the reference output), and find that the response of output to cost is null in the short-run (in which the reference output is fixed) whenever the managers' types are in the intermediate range and negative in the long-run (after the adjustment of the reference output to equal expected output).
    Keywords: Procurement, Regulation, Adverse selection, Bureaucracy, Reservation utility
    JEL: D82 H42 H51 I11
    Date: 2009–10
  8. By: Gimpelson, Vladimir (CLMS, Moscow Higher School of Economics); Kapeliushnikov, Rostislav (CLMS, Moscow Higher School of Economics); Lukiyanova, Anna (CLMS, Moscow Higher School of Economics)
    Abstract: Since formal laws can be observed or ignored to varying degrees, the actual enforcement regime shapes incentives and constraints. Most of the studies exploring EPL effects on labour market performance implicitly assume that EPL compliance is near to complete and therefore all firms bear full adjustment costs incurred by the regulations. This seems to be a very strong assumption for any country but it sounds especially strong and hardly plausible for developing and transition economies. But if compliance and enforcement varies widely across regions/cities or segments of firms, then this variation is likely to cause variation in performance. This paper looks at Russia in particular. The main idea of this paper is to analize cross-regional and inter-temporal variation in EPL enforcement and to explore empirically whether it is translated into regional labour market outcomes. The paper employs unique data set based on the State Labour Inspectorate data and the Supreme Court statistics on labour disputes.
    Keywords: employment protection regulations, enforcement, employment, unemployment, regional labor markets, Russia
    JEL: J21 J23 J52 K31 R23
    Date: 2009–10
  9. By: Hallward-Driemeier, Mary
    Abstract: Size, age, sector, and productivity are commonly cited as factors determining a firm’s survival. However, there are several dimensions of the investment climate in which the firm operates that affect whether it continues in business or exits. This paper uses new panel data from 27 Eastern European and Central Asian countries to test the importance of five areas of the business climate on firm exit: the efficiency of government services, access to finance, the extent of corruption or cronyism, the strength of property rights, and the degree of competition. The paper finds that weaknesses in these areas do affect the probability of firm exit – largely in ways that undermine the Schumpeterian cleansing role of exit in raising overall productivity. Greater costs and regulatory burdens raise the probability that more productive firms exit, while less developed financial and legal institutions mitigate forces that would otherwise push less productive firms to exit. Thus, the more productive firms stand to gain the most from improvements in the investment climate, whether that is lowering transaction costs or improving market mechanisms. This holds both within countries and across countries. The impact of a particular investment climate measure can also differ significantly by type of firm, with the focus given to firm size. The differential impact on size can be significant at a size cutoff of 10 or more employees. As these are the firms that are near the threshold of many regulatory requirements, the implications are not just with regard to whether a firm remains in operation, but whether it does so in the formal sector.
    Keywords: Access to Finance,Debt Markets,Environmental Economics&Policies,Microfinance,Emerging Markets
    Date: 2009–10–01
  10. By: Neus Herranz; Stefan Krasa; Anne P. Villamil
    Abstract: This paper assesses quantitatively the impact of legal institutions on entrepreneurial firm dynamics. Owners choose firm size, financial structure and default to manage risk. We find: (i) Less risk averse entrepreneurs run bigger firms and it is optimal for them to incorporate, while more risk averse entrepreneurs run smaller firms and generally are better off remaining unincorporated. (ii) More risk-averse owners tend to default more often than the less risk averse, though they carry less debt. (iii) The model estimates a credit constraint, which binds for many but not all entrepreneurs and matches bank lending criteria. The model also finds modest differences in owner risk aversion, consistent with micro studies.
    Date: 2009
  11. By: Michela Cella; Massimo Florio
    Abstract: This paper applies incentive theory to the context of the European Union (EU) Regional Policy. The core instruments of the policy are the Structural Funds, capital grants that ?ow from the European Commission (EC) to Mem- ber States and regional authorities to promote investment and growth at local level. The EU grants need a co-payment by the regional government and do not cover in full the investment cost. We model this situation, similar to several other supra- national or federal contexts, as a simple principal-supervisor-agent model of the investment game between a supranational player (the principal), such as the EC, a non (fully) benevolent regional government (the supervisor), and a private ?rm (the executing agency). We show how the role of providers of additional information, the region (ex-ante) and an evaluator (ex-post) is crucial to reducing the optimal value of the grant and to improving the inef- ?ciencies caused by asymmetric information at the grant decision stage in a federal hierarchy
    Keywords: Hierarchical contracting, project evaluation, EU Regional Policy
    JEL: D82 H77 R58
    Date: 2009–06
  12. By: Bao, Shuming (University of Michigan); Bodvarsson, Örn B. (St. Cloud State University); Hou, Jack W. (California State University, Long Beach); Zhao, Yaohui (Beijing Normal University)
    Abstract: Unlike most countries, China regulates internal migration. Public benefits, access to good quality housing, schools, health care, and attractive employment opportunities are available only to those who have local registration (Hukou). Coincident with the deepening of economic reforms, Hukou has gradually been relaxed since the 1980s, helping to explain an extraordinary surge of migration within China. In this study of interprovincial Chinese migration, we address two questions. First, what is a sensible way of incorporating Hukou into theoretical and empirical models of internal migration? Second, to what extent has Hukou influenced the scale and structure of migration? We incorporate two alternative measures of Hukou into a modified gravity model – the unregistered migrant's: (i) perceived probability of securing Hukou; and (ii) perceived probability of securing employment opportunities available only to those with Hukou. In contrast to previous studies, our model includes a much wider variety of control especially important for the Chinese case. Analyzing the relationship between Hukou and migration using census data for 1985-90, 1995-2000 and 2000-05, we find that migration is very sensitive to Hukou, with the greatest sensitivity occurring during the middle period.
    Keywords: internal migration, Hukou, migrant networks, reforms
    JEL: J61
    Date: 2009–10

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.
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