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on Regulation |
| By: | Emanuela Michetti |
| Abstract: | Our paper models the relationship between price and quality regulation in a physical network industry. The analysis is closely inspired by some of the major regulatory features of the current organisation of the British railways industry, even though its insights have more general implications. Our model focuses on the combination of price and quality regulation and accounts for the existence of entry costs which create a competitive advantage for the incumbents in the competitive franchise bidding. We show that the effectiveness of the quality control is nonmonotone in the quality standard set by the Regulator. Moreover, we advance that price regulation negatively affects the extent to which the service quality can be controlled. By partially subsidising the entry costs, the Regulator can intensify the competition for the market and improve the regulation of the service quality. Nevertheless, since entry costs subsidisation involves social costs (e.g., distortionary taxation), the Regulator faces a trade-off between price regulation, on the one hand, and quality regulation and entry costs subsidisation, on the other hand. |
| JEL: | D44 L5 L9 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:578&r=reg |
| By: | Hurkens, Sjaak (Institute for Economic Analysis); Jeon, Doh-Shin (Toulouse School of Economics) |
| Abstract: | In this paper, we study how access pricing affects network competition when subscription demand is elastic and each network uses non-linear prices and can apply termination-based price discrimination. In the case of a fixed per minute termination charge, we find that a reduction of the termination charge below cost has two oppos- ing effects: it softens competition but helps to internalize network externalities. The former reduces mobile penetration while the latter boosts it. We find that firms al- ways prefer termination charge below cost for either motive while the regulator prefers termination below cost only when this boosts penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008)that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase penetration without distorting call volumes. |
| Keywords: | Mobile Penetration; Termination Charge; Access Pricing; Networks; Interconnection; Regulation; Telecommunications; |
| JEL: | K23 L51 L96 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0816&r=reg |
| By: | Silvia Ardagna; Annamaria Lusardi |
| Abstract: | We use cross-national harmonized micro data from a broad sample of developed and developing countries and investigate the heterogeneity of the effect of entry, contract enforcement regulation, and financial development on both the decision to become an entrepreneur and the level of employment of newly created businesses. We focus on the interaction between the level of regulation and financial development and some individual characteristics that are important determinants of entrepreneurship, such as gender, business skills, and social networks. We find that entry regulation moderates the effect of business skills, while accentuating the effect of gender, even after accounting for the level of financial development. Specifically, women are more likely to enter into entrepreneurship in countries with higher levels of entry regulation, but mainly because they cannot find better work. This effect is also more pronounced in countries that are less financially developed. Furthermore, individuals who report having business skills are less likely to enter entrepreneurship in countries with higher entry regulation. Finally, we also find that individuals who know other entrepreneurs are less likely to start large businesses in countries with higher levels of entry and contract enforcement regulation. |
| JEL: | K23 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15510&r=reg |
| By: | Jokivuolle, Esa (Bank of Finland Research); Kiema, Ilkka (University of Helsinki); Vesala, Timo (Tapiola Group) |
| Abstract: | Although beneficial allocational effects have been a central motivator for the Basel II capital adequacy reform, the interaction of these effects with Basel II’s procyclical impact has been less discussed. In this paper, we investigate the effect of capital requirements on the allocation of credit and its interaction with procyclicality, and compare Basel I and Basel II type capital requirements. We consider competitive credit markets where entrepreneurs of varying ability can apply for loans for one-period investment projects of two different risk types. The risk of a project further depends on the state of the economy, modelled as a two-state Markov process. In this type of setting, excessive risk taking typically arises because higher-type borrowers cross-subsidize lower-type borrowers via a pricing regime based on average success rates. We find that risk-based capital requirements (such as Basel II) alleviate the cross-subsidization effect and can be chosen so as to implement first-best allocation. This implies that the ensuing reduction in the proportion of high-risk investments may mitigate the procyclical effect of Basel II on economic activity. Moreover, we find that optimal risk-based capital requirements should be set lower in recessions than in normal times. Our simulations show that when measured by either cumulative output or output variation, Basel II type capital requirements may actual be slightly less procyclical than flat capital requirements. The biggest reduction in procyclicality is however achieved with optimal risk-based capital requirements which are considerably higher than Basel II requirements and which are adjusted downwards in recession periods. |
| Keywords: | Basel II; bank regulation; capital requirements; credit risk; procyclicality |
| JEL: | D41 D82 G14 G21 |
| Date: | 2009–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2009_023&r=reg |
| By: | V. Gimpelson; R. Kapeliushnikov; A. Lukiyanova |
| Abstract: | The efficiency of the labour market critically depends on the design of its institutions with employment protection legislation (EPL) playing a special role here. However, 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 reveal and describe 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 |
| JEL: | J21 J23 J52 K31 R23 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwesc:diwesc11&r=reg |
| By: | Costantini Valeria; Crespi Francesco |
| Abstract: | Many industrialised countries have Introduced environmental policy measures in order to reduce negative externalities linked to economic activities. These policy actions produce different effects on the economic system depending on the regulatory tools adopted and the specific objective of public intervention. The impact on innovation is particularly difficult to predict, especially with regard to the direction of technological change. As a case study, we have chosen the energy sector where the strong interrelations between socio-economic and technological dimensions may exacerbate the negative consequences of implementing conflicting policies. The aim of this paper is to show how the lack of strong coordination between different public policies implemented in the energy sector may lead to an incoherent policy mix with negative effects on the development and diffusion of environmentally-friendly energy technologies. We have adopted a gravity equation model based on bilateral export flows of technologies for production and consumption of renewable energies and energy-saving technologies for OECD countries. Our key findings show that alternative measures of public support in the energy sector have been producing contrasting effects on the international competitiveness of energy technologies. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:uto:labeco:200915&r=reg |
| By: | James B. Bushnell; Yihsu Chen |
| Abstract: | The allocation of emissions allowances is among the most contentious elements of the design of cap-and-trade systems. In this paper we develop a detailed representation of the US western electricity market to assess the potential impacts of various allocation proposals. Several proposals involve the "updating'' of permit allocation, where the allocation is tied to the ongoing output, or input use, of plants. These allocation proposals are designed with the goals of limiting the pass-through of carbon costs to product prices, mitigating leakage, and of mitigating costs to high-emissions firms. However, some forms of updating can also inflate permit prices, thereby limiting the benefits of such schemes to high emissions firms. Rather than mitigating the impact on high carbon producers, the net operating profit of such firms can actually be lower under input-based updating than under auctioning. This is due to the fact that product prices (and therefore revenues) are lower under input-based updating, but overall compliance costs are relatively comparable between auctioning and input-based updating. In this way, the anticipated benefits from allocation updating are reduced and further distortions are introduced into the trading system. |
| JEL: | L9 Q50 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15495&r=reg |
| By: | Kessides, Ioannis N.; Noll, Roger G.; Benjamin, Nancy C. |
| Abstract: | In recent years, there has been an increasing recognition that significant welfare gains could be realized through deep forms of regional integration which entail harmonization of legal, regulatory and institutional frameworks. Reforms that reduce cross-border transaction costs and improve the performance of “backbone” infrastructure services are arguably even more important for the creation of an open, unified regional economic space than trade policy reforms narrowly defined. This paper assesses the potential gains from regionalized telecommunications policy in West Africa. To this end, the paper: (i) discusses how regional cooperation can overcome national limits in technical expertise, enhance the capacity of nations credibly to commit to stable regulatory policy, and ultimately facilitate infrastructure investment in the region; (ii) identifies trade-distorting regulations that inhibit opportunities for regional trade and economic development, and so are good candidates for regional trade negotiations to reduce indirect trade barriers; and (iii) describes substantive elements of a harmonized regional regulatory policy that can deliver immediate performance benefits. |
| Keywords: | E-Business,Environmental Economics&Policies,ICT Policy and Strategies,Transport Economics Policy&Planning,Emerging Markets |
| Date: | 2009–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5126&r=reg |
| By: | Lilia Filipova (University of Augsburg); Michael Hoy (Department of Economics, University of Guelph) |
| Abstract: | There is a prospect of substantial advancements in the understanding of the relationship between disease and genetics at least in the medium term to long term future. In this paper we consider the implications on two aspects of behaviour - surveillance to improve the chances of early detection of disease onset and preventive actions to reduce the probability of onset - that may change as a result of the acquisition of information from genetic tests. We argue that there are problems for both private insurance regimes, with risk-rating allowed according to genetic type, and public insurance regimes (or a private insurance system with an "effective" community rating regulation) in generating potential health benefits from increased genetic information. In the public regime appropriate signals to obtain genetic information are not always provided while in the private regime premium risk can block otherwise fruitful acquisitions of this information. In both regimes moral hazard considerations can blunt the adoption of otherwise useful information with the further problem for public insurance of possibly encouraging excessive adoption of genetic testing. |
| Keywords: | value of information, surveillance, prevention. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2009-4&r=reg |
| By: | Christian Laux; Christian Leuz |
| Abstract: | The recent financial crisis has led to a major debate about fair-value accounting. Many critics have argued that fair-value accounting, often also called mark-to-market accounting, has significantly contributed to the financial crisis or, at least, exacerbated its severity. In this paper, we assess these arguments and examine the role of fair-value accounting in the financial crisis using descriptive data and empirical evidence. Based on our analysis, it is unlikely that fair-value accounting added to the severity of the current financial crisis in a major way. While there may have been downward spirals or asset-fire sales in certain markets, we find little evidence that these effects are the result of fair-value accounting. We also find little support for claims that fair-value accounting leads to excessive write-downs of banks’ assets. If anything, empirical evidence to date points in the opposite direction, that is, towards overvaluation of bank assets. |
| JEL: | F3 G15 G21 G24 G38 K22 M41 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15515&r=reg |
| By: | Ojo, Marianne |
| Abstract: | From the responses received from the European Commission’s consultation on control structures in audit firms and their consequences on the audit market, a consultation which was launched in November 2008, and whose deadline was scheduled for the end of February 2009, the role played by the facilitation of greater access to external financial capital as a means of increasing access to the audit market, hence opening up the market for the audit of international companies to more suppliers, and encouraging new market players, was acknowledged. However, this factor on its own, coupled with the need to amend current rules on the control of audit firms, namely through a relaxation of the rules – beyond that which is currently permitted under Article 3 of the 2006 Statutory Audit Directive, was not considered to be the most important source of impediment to the emergence of new players. Other further possible catalysts, both on the supply side (namely auditors) and the demand side (companies), were also considered vital to efforts aimed at encouraging more players in gaining access to the international audit market. This paper will focus on greater access to external financial capital - as a means of lowering barriers to the international audit market. In arriving at the conclusion that the benefits associated with the external investor model outweigh the possible risks it generates, the paper not only considers theories on managerial behaviour and ownership structure, but also gives attention to the safeguards for audit independence as listed under the 2002 Statutory Auditors’ Independence in the EU: A Set of Fundamental Principles, and the 2006 Statutory Audit Directive. It will also consider why, in view of the limitations and restrictions placed on audit firms, with particular reference to the Sarbanes Oxley Act of 2002, actions aimed at encouraging new market players at EU level, whilst ensuring that auditors’ independence and audit quality are not compromised, would also require a consideration of an international dimension of issues involved in lowering barriers to entry. |
| Keywords: | 2006 Statutory Audit Directive; non audit services; regulation; audit concentration; governance; audit independence; Sarbanes Oxley Act. |
| JEL: | G1 D23 K2 G28 M4 |
| Date: | 2009–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18624&r=reg |