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on Regulation |
| By: | John Geanakoplos (Cowles Foundation, Yale University) |
| Abstract: | The present crisis is the bottom of a recurring problem that I call the leverage cycle, in which leverage gradually rises too high then suddenly falls much too low. The government must manage the leverage cycle in normal times by monitoring and regulating leverage to keep it from getting too high. In the crisis stage the government must stem the scary bad news that brought on the crisis, which often will entail coordinated write downs of principal; it must restore sane leverage by going around the banks and lending at lower collateral rates (not lower interest rates), and when necessary it must inject optimistic capital into firms and markets than cannot be allowed to fail. Economists and the Fed have for too long focused on interest rates and ignored collateral. |
| Keywords: | Leverage, Collateral, Margins, Leverage cycle, Externality, Principal |
| JEL: | E3 E32 G12 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1751&r=reg |
| By: | John Geanakoplos (Cowles Foundation, Yale University) |
| Abstract: | Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated. |
| Keywords: | Leverage, Collateral, Cycle, Crisis, Regulation |
| JEL: | E3 E32 G12 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1715r&r=reg |
| By: | Erlinda M. Medalla (Philippine Institute for Development Studies) |
| Abstract: | This short paper attempts to lay down the framework and basic principles for the optimum interface between competition policy and infrastructure regulation. Competition policy should address exclusionary and exploitative acts and discipline firms when such acts are committed. In certain cases, more may be required by way of additional competition rules needed to assist the market and substitute for lack of a competitive process of allocation. This is where competition policy in the form of direct regulation comes in. This is usually where market power is inherent (in the structure), specifically the case of infrastructure sectors. The basic issues relate to- tendency for “overregulation,� problems with price regulation, privatization, unbundling, regulatory capture, and multiple objectives. The paper also highlights the findings from past studies on three major infrastructure/utilities sectors, namely power, shipping and telecommunications. For all these sectors, there have been significant attempts to enhance competition, mainly in terms of relaxing entry regulation and some effort at deregulating prices and privatization. It was not surprising to find difficulties in dealing with the trade-offs between social objectives, principally equity and access, and competition (efficiency) objectives. |
| Keywords: | competition and regulation interface, competition policy framework, infrastructure regulation |
| JEL: | H54 O12 O22 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1775&r=reg |
| By: | Gilberto M. Llanto; Ma. Piedad S. Geron; Joselito S. Almario (Philippine Institute for Development Studies) |
| Abstract: | Illness or injury, death of a family member, man-made calamities and natural disasters have a devastating effect on those poor households’ cash flow, liquidity and earning capacities and thus, on household welfare. Demand for micro-insurance products is growing in view of continuing risks to household welfare and the seeming inability of the government to address this issue. This study seeks to provide a better understanding of the micro-insurance market in the Philippines and to draw certain principles for micro-insurance regulation from a review of the Philippine experience with micro-insurance. The study describes how policies, legal, regulatory and supervisory framework governing insurance have shaped the development of the market and vice versa. The Philippine experience on the provision of micro-insurance services and the interaction between the insurance providers and the regulator may help inform the development of certain principles for micro-insurance regulation. |
| Keywords: | micro-insurance, catastrophic events, moral hazard, market conduct regulation, product regulation |
| JEL: | G21 G22 G28 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1767&r=reg |
| By: | Tobias Adrian; Emanuel Moench; Hyun Song Shin |
| Abstract: | Fluctuations in the aggregate balance sheets of financial intermediaries provide a window on the joint determination of asset prices and macroeconomic aggregates. We document that financial intermediary balance sheets contain strong predictive power for future excess returns on a broad set of equity, corporate, and Treasury bond portfolios. We also show that the same intermediary variables that predict excess returns forecast real economic activity and various measures of inflation. Our findings point to the importance of financing frictions in macroeconomic dynamics and provide quantitative guidance for preemptive macroprudential and monetary policies. |
| Keywords: | Macroeconomics ; Intermediation (Finance) ; Assets (Accounting) ; Forecasting |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:422&r=reg |
| By: | Gilberto M. Llanto; Enrico L. Basilio; Leilanie Basilio (Philippine Institute for Development Studies) |
| Abstract: | The Philippines is an archipelago of approximately 7,107 islands. It has a long coastline extending to 235,973 square kilometers which is longer than that of the United States (UNESCAP 2002b). The country’s archipelagic configuration requires an efficient maritime transport infrastructure composed of ports and shipping for growth and socioeconomic integration. The integration of peripheral islands to the urban economic nodes such as Metro Manila, Cebu, Davao and General Santos and the diffusion of investments and economic activities fundamentally count on an efficient road and maritime transport network. This paper examines competition policy and the regulatory framework of the port and shipping sectors. It assesses the policies and programs of the government in promoting competition in these sectors and recommends areas for policy and regulatory reform. After a brief description of the analytical underpinnings of competition policy and regulation the paper reviews the present state of competition and regulation in Philippine ports and interisland shipping to identify emerging issues that call for policy action. It provides specific recommendations for policy and regulatory reform. |
| Keywords: | maritime transport, ports and inter-island shipping, competition policy, regulatory framework, market contestability, landlord port model |
| JEL: | L51 L90 O19 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1760&r=reg |
| By: | Scholz, Sebastian |
| Abstract: | Upstream producers that possess market power, sell forwards with a lengthy duration to regional electricity companies (REC). As part of the liberalization of the electricity market, RECs have been privatized and exposed to a possible bankruptcy threat if spot prices have fallen below their expected value. The downstream firms’ expected profit is larger, when it is less likely to be bailed out, the effect on upstream profits is ambiguous while consumers loose. Options are less welfare increasing than forwards, but the difference is minimal. In the presence of bankruptcy, options are the preferred welfare maximizing market instrument. |
| Keywords: | Forwards; Options; Default Risk; Market Efficiency |
| JEL: | D43 G33 G34 G35 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:11317&r=reg |
| By: | Gloria Pasadilla; Melanie Milo (Philippine Institute for Development Studies) |
| Abstract: | The paper analyzes the impact of major policy changes on banking structure, performance and competition, using bank-specific data from 1990-2002. We find that the entry of more market players is correlated with drops in interest spread and profits which, partly, bespeaks of possible dissipation of previous monopoly profits of large commercial banks. We also compute the H-stat based on the Panzar-Rosse methodology and find that, in general, despite the characteristic presence of few, large commercial banks, the sector is fairly competitive, specially in the loan-granting business. Moreover, competition has increased in the latter half of 1990s, primarily due to the presence of more small commercial banks, rather than big banks. |
| Keywords: | banking reform, bank liberalization, h-statistics, competition policy, Panzar- Rosse methodology |
| JEL: | G21 O16 O10 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1789&r=reg |
| By: | Yin-Fang Zhang; David Parker; Colin Kirkpatrick (Singapore Centre for Applied and Policy Economics) |
| Abstract: | Over the last two decades electricity sectors in both developed and developing countries have been subject to restructuring to introduce private capital and increase competition. This has been accompanied by the introduction of new regulatory regimes. Although the effects of such reforms in a number of the developed economies are now well documented, apart from a few case studies the experience of developing countries is much less well researched. This is important because privatisation, competition and the reform of state regulation are key themes of donor aid programmes, notably those of the World Bank. This paper provides an econometric assessment of the effects of privatisation, competition and regulation on the performance of the electricity generation industry using panel data for 36 developing and transitional countries, over the period 1985 to 2003. The study identifies the impact of these reforms on generating capacity, electricity generated, labour productivity in the generating sector and capacity utilisation. The main conclusions are that on their own privatisation and regulation do not lead to obvious gains in economic performance, though there are some positive interaction effects. By contrast, introducing competition does seem to be effective in stimulating performance improvements. |
| Keywords: | Privatisation, competition, regulation, developing economies, electricity sector. |
| JEL: | L33 L43 L44 L50 O12 O38 O50 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1678&r=reg |
| By: | Pablo Martín-Aceña; Ángeles Pons; Concepción Beltrán |
| Abstract: | Like the rest of the world, Spain has suffered frequent financial crises and undergone several changes in its regulatory framework. There have been crises that have been followed by reforms of the financial structure, and also troubled financial times with no modification of the regulatory and supervisory regime. In various instances, regulatory changes have predated financial crises, but in others banking crises have occurred without reference to changes in the regulatory regime. Regulation and supervision has been usually absent in the XIXth century, while in the XXth century policy makers have been more active and diligent. Moreover, all major financial crises have been followed by intense financial restructuring, although as elsewhere banking restructuring and interventions not always have been successful (in fact, the cases of failures and mixed results overcome the successful cases). The paper provides a short history of the major financial crises in Spain from 1856 to the present, and also reviews the main financial reforms and the distinctive regulatory regimes that have been in place in this last 150 years time span. |
| Keywords: | Spanish banking, Financial crisis, Financial regulations, Banking reforms |
| JEL: | N2 N4 G18 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:wp10-01&r=reg |
| By: | Maria Weimer |
| Abstract: | In this paper, I endeavour to examine concrete challenges, which arise with regard to implementation of the precautionary principle in the field of European Community regulation of GMOs. Developed by the European Courts into a general legal principle, precaution requires EU regulators to strike a balance between scientific and political legitimacy when taking decisions on risk-entailing products. Following this understanding the current GMO legislation creates precautionary governance structures, which allow for a broad input into the authorisation process not only of scientific, but also of ‘other legitimate factors.’ At the same time, it can be criticised for narrowly defining precaution as a decision rule, which, if applied correctly, will lead the decision-maker to the ‘right’ decision. I argue that this misconception is one of the reasons why in the current authorisation practice the Community institutions fail to apply the principle in a balanced way, falling into the extremes of either purely science-based decision-making or a highly politicised precautionary rhetoric. I suggest that in order not to be paralysing, precaution should be understood as a procedural principle that provides for precautionary governance, thus, enabling regulators to make appropriate risk choices. |
| Keywords: | legitimacy; multilevel governance; regulatory politics; risk regulation |
| Date: | 2009–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:reconx:p0053&r=reg |
| By: | Olivier Bomsel (CERNA - Centre d'économie industrielle - Mines ParisTech); Heritiana Ranaivoson (CERNA - Centre d'économie industrielle - Mines ParisTech) |
| Abstract: | The digitization of copyrighted goods and the dematerialization of their distribution over the Internet have weakened copyright, a key institution of the creative industries. One factor affecting the value of copyright stems from the broadband roll-out, wherein copyright enforcement costs have become higher than the estimated benefits of copyright. This paper analyzes the causes of this situation and suggests how a graduated response to infringers may durably decrease copyright enforcement costs. Beginning with a review of the economic literature on copyright focusing on its industrial aspects, the study then analyzes how the consumers' impunity provides incentives to “free ride” on copyright all along the vertical distribution chain. This rapidly increases copyright enforcement costs. Next, the paper describes both the graduated response mechanism and the voluntary agreement which initiated this system in France. In conclusion, this study argues that increasing the cost of free-riding for the final consumer should lead to a decrease of copyright enforcement costs and, therefore, higher returns in the creative industries. |
| Keywords: | Copyright, Creative industries, Regulation enforcement costs, Digitization, Graduated response. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00446189_v2&r=reg |
| By: | Luis Corchón; Félix Marcos |
| Abstract: | In this paper we consider price regulation in oligopolistic markets when firms are quantity setters. We consider a market for a homogeneous good with a special form of the demand function (?-linearity), constant returns to scale and identical firms. Marginal costs can take two values only: low or high. The regulator knows all parameters except marginal costs. Assuming that the regulator is risk neutral, we characterize the optimal policy and show how this policy depends on the basic parameter of demand and costs |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we100101&r=reg |
| By: | Santiago Carbó-Valverde (University of Granada, Department of Economic Theory and History, Campus Universitario de Cartuja s/n, E-18071 Granada, Spain.); Sujit Chakravorti (Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, Illinois 60604-1413, United States.); Francisco Rodríguez Fernández (University of Granada, Department of Economic Theory and History, Campus Universitario de Cartuja s/n, E-18071 Granada, Spain.) |
| 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. JEL Classification: L11, G21, D53. |
| Keywords: | consumer payment choice; merchant payment adoption; network competition. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091137&r=reg |
| By: | Jung Hur; Backhoon Song (Korean Institute for International Economic Policy) |
| Abstract: | According to the WTO data for regional trade agreements (RTA), the number of RTA has been exponentially growing since the middle of the 1990s. As a result, many countries these days have had more than one free trade partner country. In this paper, we attempt to find out statistically important characteristics of countries that may explain the frequency of a country’s RTA formations and as a result its total number of free trade partner countries. We find that the following country-specific variables are important- distance from equator, government effectiveness, and the low-middle income group countries and regional blocs that countries belong to. In contrast, the following variables are not statistically significant- geographical size of country; upper-middle or high-income group countries; languages and other institutional variables such as political aspects and the stability, law, regulation, and national corruption level. The important implication of the findings is that the current expansion of RTAs may not be linked to a global free trade system because of the peculiarity of countries having multiple RTAs. |
| Keywords: | regional trade agreements; Poisson regression; negative binomial regression; cross section data |
| JEL: | F1 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:tradew:1077&r=reg |
| By: | Visalakshi S |
| Abstract: | The paper investigates the reasons behind slow commercialization. The approach is based on the hypothesis that to achieve successful commercialization in knowledge intensive field with high rates of turn over like biotechnology, the company should have (i) high levels of capabilities in R&D and strong network, to supplement and complement skills and facilities and (ii) an environment which is highly facilitating (high levels of preparedness of the technology delivery system) through favourable policies for regulation, accessing fiscal resources in terms of finances, infrastructure and skills, fiscal incentives, enhancing awareness of the public etc. |
| Keywords: | commercialization, biotechnology, company, delivery system, regulation, finances, regulation, fiscal incentives, awareness, biological, environment |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2369&r=reg |
| By: | Scopelliti, Alessandro Diego |
| Abstract: | This paper aims at analyzing, from an empirical point of view, the relationship between product market competition and economic growth, using the data on multi-factor productivity for a panel of 20 OECD countries over a period 1995-2005, and considering the role of the distance from the technological frontier in the growth process. Section A examines the impact of economic freedom and of the distance to frontier on the level and on the growth rate of multi-factor productivity. The analysis distinguishes between the indicators of business freedom and trade freedom, as proxies for the competitive pressures coming from domestic market and from foreign market. Then, trade liberalizations are more beneficial for the countries far from the frontier, because they can exploit the opportunities given by international trade also in order to adopt the existing technologies developed by the advanced economies. On the other hand, business liberalizations are more advantageous for the countries close to the frontier, because the elimination of regulatory barriers increases the possibility of entry in the market and then rises the potential competition to the incumbent firms. Section B studies the effect of product market regulation, employment protection legislation and of the distance to frontier on the level and on the growth rate of multi-factor productivity. Product market liberalization as well as labour market deregulation determine an increase of total factor productivity: moreover, the interaction of market rigidities with the distance to the frontier mostly displays an innovationenhancing effect, since the positive effect of market liberalizations on TFP is higher for the countries close to the frontier, where the existing technology level would reinforce the incentive for innovation. |
| Keywords: | multi-factor productivity; economic freedom; product market regulation; employment protection legislation; distance to frontier |
| JEL: | L44 O47 O43 L43 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20127&r=reg |
| By: | Darrell Duffie; Ada Li; Theo Lubke |
| Abstract: | In the wake of the recent financial crisis, over-the-counter (OTC) derivatives have been blamed for increasing systemic risk. Although OTC derivatives were not a central cause of the crisis, the complexity and limited transparency of the market reinforced the potential for excessive risk-taking, as regulators did not have a clear view into how OTC derivatives were being used. We discuss how the New York Fed and other regulators could improve weaknesses in the OTC derivatives market through stronger oversight and better regulatory incentives for infrastructure improvements to reduce counterparty credit risk and bolster market liquidity, efficiency, and transparency. Used responsibly with these reforms, over-the-counter derivatives can provide important risk management and liquidity benefits to the financial system. |
| Keywords: | Derivative securities ; Over-the-counter markets ; Federal Reserve Bank of New York ; Credit ; Systemic risk ; Financial market regulatory reform |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:424&r=reg |
| By: | Delia S. Tantuico; Errol Wilfred Zshornack (Philippine Institute for Development Studies) |
| Abstract: | Intellectual property rights – copyrights, trademarks, patents, trade secrets, and related rights –have become increasingly important with the advent of increased international trade, global and knowledge-based economy and fast developing technology. A strong intellectual property rights regime is necessary in order to attract foreign trade and direct investments. For this reason, the protection of intellectual property rights has become an important negotiating item in all FTAs which the United States has entered into. In view of the proposed RP-US FTA negotiations, this paper seeks to determine whether the existing intellectual property regime in the Philippines provides adequate and sufficient legal protection of intellectual property rights. It also seeks to determine whether the administrative and judicial processes are adequate and speedy and acceptable in the enforcement and protection of said rights in the light of FTAs already entered into by the United States with other countries, in general, and with Singapore, in particular, which will be the benchmark for the RP-US FTA. Other relevant issues in the protection of intellectual property rights such as the annual review of ountries by the United States Trade Representative in relation to Special 301 of the U.S. Trade Law; piracy of optical media, including books and pharmaceuticals; and the Trade-Related Aspects of Intellectual Property Rights (TRIPS) are also discussed. The author proposes certain provisions to be added to the Intellectual Property Code; sustained, consistent and stricter implementation of intellectual property laws including more efforts at curbing piracy; and more importantly, a strong political will and a strong determination to strengthen intellectual property rights, as necessary to make the IPR regime up to par with U.S. and international |
| Keywords: | TRIPS, Intellectual Property Rights, Dispute Settlement, WTO, FTA, Market Access, Optical Media Act, E-commerce Law, Legal Protection, Investments, Capability Building |
| JEL: | O34 F13 F53 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1812&r=reg |
| By: | Halvor Briseid Storrøsten (Statistics Norway) |
| Abstract: | In the longer run, effects on R&D and the implementation of advanced abatement technology may be at least as important as short-run cost effectiveness when we evaluate public environmental policy. In this paper, we show that the number of firms that adopt advanced abatement technology could be higher with emissions trading than with a tax if there is imperfect competition in the permits market. Under perfect competition, the number would always be higher with a tax, given that the regulator is myopic. If we allow for environmental policy response, the ranking is still ambiguous under imperfect competition, while the regimes become equal with perfect competition. |
| Keywords: | Auctioned permits; Emissions taxes; technology adoption; Cournot competition |
| JEL: | H23 Q55 Q58 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:606&r=reg |
| By: | James C. Hartigan; Hylke Vandenbussche |
| Abstract: | This paper develops a model that offers a plausible interpretation for the empirical observation of diffusion of antidumping (AD) laws amongst WTO members. Contrary to the regnant belief that this proliferation is driven mainly by retaliatory motives, our model shows that adoption and use of AD laws involve a cooperative act amongst WTO members in an infinite horizon game. The diffusion of AD laws need not result in a Prisonner.s dilemma. Instead we show that the AD agreement of the WTO can serve as a risk-sharing vehicle amongst WTO members in response to adverse shocks incurred by domestic producers. |
| Keywords: | Antidumping, non-cooperative games, WTO, proliferation |
| JEL: | F11 F14 F16 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lic:licosd:25310&r=reg |
| By: | Marie Obidzinski (CRESE - Centre de REcherches sur les Stratégies Economiques - Université de Franche-Comté : EA); Bruno Deffains (BETA - Bureau d'économie théorique et appliquée - CNRS : UMR7522 - Université Louis Pasteur - Strasbourg I) |
| Abstract: | The formulation of legal rules is a challenging issue for lawmakers. Trade-offs are inevitable between providing more guidance by specific rules and enlarging the scope by general rules. Using real options theory we show that the degree of precision should be considered as a degree of flexibility which increases the value of the text. Thus, we derive a normative principle for a draftsman to choose between rules versus standards and to decide when the law should be enacted. In highly innovating environments, delaying the enactment allows lawmakers to obtain more information. Therefore, the lower the degree of precision of the law, the shorter the delay. |
| Keywords: | degree of precision ; flexibility ; obsolescence ; rulemaking |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00447170_v1&r=reg |