nep-reg New Economics Papers
on Regulation
Issue of 2010‒01‒10
fifteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Tools for Regulatory Quality and Financial Sector Regulation: A Cross-Country Perspective By Julia Black; Stéphane Jacobzone
  2. Incomplete Regulation, Competition and Entry in Increasing Returns to Scale Industries By Sara BIANCINI
  3. Profiting from Regulation: An Event Study of the EU Carbon Market By Bushnell, James; Chong, Howard G; Mansur, Erin T
  4. A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade By van Tongeren, Frank; Beghin, John C.; Marette, Stephan
  5. The International Monetary Fund and Regulatory Challenges By Edwin M. Truman
  6. Institutional and Regulatory Frameworks of Privatisation and FDI: A Comparative Study between Egypt and Argentina By Naguib Shokralla, Rania
  7. Regulation, Allocation and Leakage in Cap-and-Trade Markets for CO2 By Bushnell, James; Chen, Yihsu
  8. A Tale of Two Externalities: Environmental Policy and Market Structure By Ana Espinola-Arredondo; Felix Munoz-Garcia
  9. Does cartel leadership facilitate collusion? By Marc Escrihuela-Villar
  10. When liquidity risk becomes a macro-prudential issue: Empirical evidence of bank behaviour By Jan Willem van den End; Mostafa Tabbae
  11. Regulating two-sided markets: an empirical investigation By Santiago Carbó Valverde; Sujit Chakravorti; Francisco Rodríguez-Fernández
  12. Deterrence vs. Efficiency To Regulate Nonpoint Source Pollution By Mourad Ali; Patrick Rio
  13. How to use Rosen's normalised equilibrium to enforce a socially desirable Pareto efficient solution By Jacek B. Krawczyk; Mabel Tidball
  14. Regulatory Instruments for Deployment of Clean Energy Technologies By Ignacio J. Pérez-Arriaga
  15. Did the ban on smoking reduce the revenue in pubs and restaurants in Norway? By Melberg, Hans Olav; Lund, Karl E.

  1. By: Julia Black; Stéphane Jacobzone
    Abstract: This report provides a comparative perspective on the application of quality regulation principles to financial sector regulators, in the US, Canada, Australia, the UK and France. The report compares key provisions of the codes of the Basle Committee and IOSCO, with the OECD's 2005 Guiding Principles for Regulatory Quality and Performance, and the 2009 Policy Framework for Effective and Efficient Financial Regulation (PFEEFR). The report analyses the independence and accountability of the regulators, as well as their powers. The analysis focuses on requirements for ex ante and ex post regulatory impact analyses, including burden reduction; for transparency and communication of decision making, as well as co-ordination and regulatory review; for improving the regulatory system over time and for regulating conflicts of interest. The report finds variation in the formal arrangements, and respective practices. It also finds that the requirements related to better regulation principles are often implemented too late in the decision-making process when regulations are set at the international level.
    Date: 2009–12–17
  2. By: Sara BIANCINI (THEMA, Université de Cergy Pontoise)
    Abstract: The paper analyzes the effects of liberalization in increasing returns to scale industries. It studies the optimal regulation of an incumbent competing with an unregulated strategic competitor, when public funds are costly. The model shows a trade off between productive and allocative efficiency. Moreover, the welfare gains of liberalization, as compared with regulated monopoly, are a non monotonic function of the cost of public funds. Finally, in the case of severe cash constraint of the government, incomplete regulation may also dominate full regulation of duopoly.
    Keywords: Incomplete Regulation, Asymmetric Information, Incentives, Cost of Public Funds.
    JEL: L43 L51 D82
    Date: 2009
  3. By: Bushnell, James; Chong, Howard G; Mansur, Erin T
    Abstract: Tradable permit regulations have recently been implemented for climate change policy in many countries. One of the first mandatory markets was the EU Emission Trading System, whose first phase ran from 2005-07. Unlike taxes, permits expose firms to volatility in regulatory costs, but are typically accompanied by property rights in the form of grandfathered permits. In this paper, we examine the effect of this type of environmental regulation on profits. In particular, changes in permit prices affect: (1) the direct and indirect input costs, (2) output revenue, and (3) the carbon permit asset value. Depending on abatement costs, output price sensitivity, and permit allocation, these effects may vary considerably across industries and firms. We run an event study of the carbon price crash on April 25, 2006 by examining the daily stock returns for 90 stocks from carbon intensive industries and approximately 600 stocks in the broad EUROSTOXX index. In general, firms in industries that tended to be either carbon intensive, or electricity intensive, but not involved in international trade, were hurt by the decline in permit prices. In industries that were known to be net short of permits, the cleanest firms saw the largest declines in share value. In industries known to be long in permits, firms granted the largest allocations were most harmed.
    Keywords: Climate Change, Cap-and-Trade, Event Study
    Date: 2009–12–10
  4. By: van Tongeren, Frank; Beghin, John C.; Marette, Stephan
    Abstract: This report develops a conceptual framework for the assessment of costs and benefits associated with non-tariff measures that allows an evidence-based comparative assessment of alternative regulatory approaches. It was prepared by Frank van Tongeren (OECD Secretariat), John Beghin (Iowa State University), and Stéphan Marette (INRA).
    Keywords: Information and product quality; standardization and compatibility, economics of regulation, agriculture in international trade, trade policy; international trade organisations.
    Date: 2009–12–14
  5. By: Edwin M. Truman (Peterson Institute for International Economics)
    Abstract: The International Monetary Fund (IMF) plays a substantial regulatory role in the international monetary and financial system. The IMF has been assigned a formal regulatory role in a limited number of areas such as obligations covering exchange rate policies. The Fund has a broader informal regulatory role derived from the voluntary consent of its members such as in surveillance over members’ financial sector policies and international payments imbalances. The IMF’s regulatory role is unlike that of its member governments within their own jurisdictions. The Fund’s formal and informal regulation must be constantly nurtured and renewed via peer-review processes.
    Keywords: IMF, Articles of Agreement, regulation, Special Data Dissemination Standard (SDDS), General Data Dissemination System (GDDS), Bretton Woods, WTO, special drawing rights (SDR)
    JEL: F53 O19 P45 F13
    Date: 2009–12
  6. By: Naguib Shokralla, Rania
    Abstract: This paper aims at investigating the difference between the Egyptian and Argentinean approach to privatisation and FDI and how their different policies, institutions and regulations affected the progress of their respective privatisation programmes and FDI participation. The analysis indicates that, in Egypt, the legal framework of privatisation did not explicitly incorporate FDI participation. FDI regulations were developed separately from privatisation regulations. As a result, a foreign investor in Egypt is faced with multiple laws and multiple regulating agencies for FDI. Unlike in Argentina, the legal framework of privatisation explicitly incorporated the participation of FDI, and FDI regulations were totally liberalised. This explains why FDI participation in Argentine privatisation during 1989 – 2000 accounted for 63% of privatisation proceeds, while, in Egypt, FDI participation accounted for only 24% of privatisation proceeds during 1993 – 2000.
    Keywords: Privatisation; FDI; Egypt; Argentina; regulations
    Date: 2009
  7. By: Bushnell, James; Chen, Yihsu
    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.
    Date: 2009–11–21
  8. By: Ana Espinola-Arredondo; Felix Munoz-Garcia (School of Economic Sciences, Washington State University)
    Abstract: This paper examines the two externalities that a country?s environmental regulation imposes on other country's welfare: an environmental externality, due to transboundary pollution, and a competitive advantage externality, as regulations a¤ect domestic ?rms?abatement costs, which impact the pro?ts of their foreign competitors. We ?rst analyze the emission standards that countries independently set under di¤erent market structures and then compare them with the standards set under international environmental agreements that internalize one or both types of externalities. The paper hence disentangles the e¤ect of each externality. We show that ?rms?pro?ts increase when countries participate in international treaties if the environmental damage from pollution is relatively low and such pollution is not signi?cantly transboundary. We hence demonstrate that international environmental agreements can serve as cooperative devices ?rms use to ameliorate overproduction and increase pro?ts, without the need to form collusive agreements.
    Keywords: Transboundary pollution, strategic environmental policy, international envi- ronmental agreement, market structure
    JEL: C72 F12 H23 Q28
    Date: 2009–12
  9. By: Marc Escrihuela-Villar (Universitat de les Illes Balears)
    Abstract: We discuss the implications of a Stackelberg sequence of play between a cartel and the fringe. We consider two different approaches to collusion: (i) one-stage static model and (ii) a multi-period oligopoly model. Our main result is that in the static model with quantity-setting firms a stable cartel only exist when cartel firms behave as a Stackelberg leader. It is also shown that in the supergame approach the cartel is always more easily sustained with the leadership than in the simultaneous-moves game. The opposite result is obtained in a price-setting supergame with differentiated products.
    Keywords: Collusion; Leadership; Stability; Sustainability
    JEL: L11 L13 L41 D43
    Date: 2009
  10. By: Jan Willem van den End; Mostafa Tabbae
    Abstract: This paper provides empirical evidence of behavioural responses by banks and their contribution to system-wide liquidity stress. Using firm-specific balance sheet data, we construct aggregate indicators of macro-prudential risk. Measures of size and herding show that balance sheet adjustments have been pro-cyclical in the crisis, while responses became increasingly dependent across banks and concentrated on certain market segments. Banks' reactions were shaped by decreased risk tolerance and limited flexibility in risk management. Regression analysis confirms that their behaviour contributed to financial sector stress. The behavioural measures are useful tools for monetary and macro prudential analyses and can improve the micro foundations of financial stability models. 
    Keywords: banking; financial stability; stress-tests; liquidity risk.
    JEL: C15 E44 G21 G32
    Date: 2009–12
  11. By: Santiago Carbó Valverde; Sujit Chakravorti; Francisco Rodríguez-Fernández
    Abstract: We study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank- level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant acceptance being far from complete at the beginning and during the implementation of interchange fee ceilings. In addition, there is most likely a threshold interchange fee below which social welfare decreases although our data currently does not allow us to quantify it.
    Date: 2009
  12. By: Mourad Ali; Patrick Rio
    Abstract: In the context of nonpoint source pollution the regulator can not attribute individually the responsibility of pollution because of informational asymmetry which makes the costs of monitoring of individual emission very high. This grounds a moral hazard problem. We analyse group performance based instruments to regulate this kind of informational problem. In particular, we assess randomand collective fining schemes with respect to their deterrence and efficiency. We show that a collective fine scheme is more deterrent than a random fine scheme. However, the analysis of efficiency is less categorical between these two schemes. The efficiency depends on the number of non-compliant agents. If the number of non-compliant agents is high it is better to implement a collective fine scheme. If the number of non-compliant agents is small it is better to implement a random fine scheme.
    Date: 2009–12
  13. By: Jacek B. Krawczyk; Mabel Tidball
    Abstract: We consider a situation, in which a regulator believes that constraining a complex good created jointly by competitive agents, is socially desirable. Individual levels of outputs that generate the constrained amount of the externality can be computed as a Pareto efficient solution of the agents' joint utility maximisation problem. However, generically, a Pareto efficient solution is not an equilibrium. We suggest the regulator calculates a Nash-Rosen coupled-constraint equilibrium (or a “generalised” Nash equilibrium) and uses the coupled-constraint Lagrange multiplier to formulate a threat, under which the agents will play a decoupled Nash game. An equilibrium of this game will possibly coincide with the Pareto efficient solution. We focus on situations when the constraints are saturated and examine, under which conditions a match between an equilibrium and a Pareto solution is possible. We illustrate our findings using a model for a coordination problem, in which firms' outputs depend on each other and where the output levels are important for the regulator.
    Date: 2009–12
  14. By: Ignacio J. Pérez-Arriaga
    Abstract: Answering to the formidable challenge of climate change calls for a quick transition to a future economy with a drastic reduction in GHG emissions. And this in turn requires the development and massive deployment of new low-carbon energy technologies as soon as possible. Although many of these technologies have been identified, the critical issue is how to make them happen at the global level, possibly by integrating this effort into a global climate regime. This paper discusses the preferred approaches to foster low-carbon energy technologies from a regulatory point of view. Specific promotion policies for energy efficiency and conservation, renewable energy, carbon capture and sequestration, and nuclear power are examined, but the focus is on the regulatory instruments that will be needed for the deployment of enhancements to electricity grids and the associated control systems so that they are able to integrate intelligent demand response, distributed generation and storage in an efficient, reliable & environmentally responsible manner. The paper also comments on the interactions between technology and climate change policies and provides recommendations for policy makers.
    Date: 2009–07
  15. By: Melberg, Hans Olav (Institute of Health Management and Health Economics); Lund, Karl E. (Norwegian Institute for Alcohol and Drug Research)
    Abstract: After 16 years of exemptions from the ban on indoor smoking in other places of work, Norway became the second country after Ireland to implement a smoke-free regime in pubs and restaurants. This paper evaluates the economic impact on the hospitality sector in a northern region with a cold climate. The data consists of bi-monthly observations of revenues in restaurants and pubs starting in January 1999 and ending in August 2007. Auto-regressive integrated moving average (ARIMA) intervention analysis was used to test for possible economic impacts, controlling for variations in temperature. <p> The ban on smoking did not have a statistically significant effect on revenue in restaurants or on restaurant revenue as a share of personal consumption. There is also no evidence that the ban reduce revenues in bars, but there is some indication that it may have reduced bar revenue as a share of personal consumption. Conclusion: A large body of research has found no negative economic effect of smoke-free legislation on restaurant and bar sales in the United States, Australia and elsewhere Our study confirms these results in a northern region with a cold climate with respect to restaurants, but the results was more mixed for bars. <p>
    Keywords: Tobacco; economics; business; passive smoking; legislation
    JEL: D12 I18
    Date: 2009–12–14

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