nep-reg New Economics Papers
on Regulation
Issue of 2010‒02‒20
thirteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Does privatization spur regulation?Evidence from the regulatory reform of European airports By Germà Bel; Xavier Fageda
  2. The impact of capital and disclosure requirements on risks and risk taking incentives By Ojo, Marianne
  3. Manufacturing the EU Energy Markets. The Current Dynamics of Regulatory Practice By Leigh Hancher; Adrien de Hauteclocque
  4. More Than One Step to Financial Stability By Garry Schinasi
  5. Reconsidering the Regulation of Merchant Transmission Investment in the Light of the Third Energy Package: The Role of Dominant Generators By Adrien de Hauteclocque; Vincent Rious
  6. Environmental Inspection Proclivity and State Manufacturing Growth: The US Experience from the 1990s By Christopher S. Decker; John W. Maxwell
  7. Entry Barriers in Retail Trade By Fabiano Schivardi; E. Viviano
  8. Academic Opinion of Economic Scholars on Champsaur Commission’s Paper By François Lévêque
  9. From Comparing Regulatory Agencies. Report on the results of a worldwide survey By Chris Hanretty; Christel Koop
  10. The Design of the Internal Energy Market in Relation to Energy Supply Security and Climate Change By Vincent Rious
  11. The Crisis: Policy Lessons and Policy Challenges By Agnès Bénassy-Quéré; Benoît Coeuré; Pierre Jacquet; Jean Pisani-Ferry
  12. Speed limit laws in America: Economics, politics and geography By Daniel Albalate; Germà Bel
  13. Catching the maximum market value of electricity storage – technical, economic and regulatory aspect By Xian HE; Georg ZACHMANN

  1. By: Germà Bel (Faculty of Economics, University of Barcelona); Xavier Fageda (Faculty of Economics, University of Barcelona)
    Abstract: This paper conducts an empirical analysis of the relationship between privatization and regulation drawing on data from a wide sample of European airports. We find that privatization promotes a shift from basic regulation to a situation of more detailed or non-regulation, depending on the specific characteristics of the privatization process and on the type of airport being privatized. Moreover, we report a significant association between high traffic volumes and more detailed regulation. By contrast, airports where slot allocation is noncoordinated are significantly associated with non-regulation.
    Keywords: Privatization; regulation; air transportation; airports JEL classification: L33; L42; L93;
    Date: 2010–02
  2. By: Ojo, Marianne
    Abstract: This paper is primarily aimed at highlighting the role and significance of asymmetric information in contributing to financial contagion. Furthermore, in emphasising the importance of greater disclosure requirements and the need for the disclosure of information relating to “close links”, such disclosure being considered vital in assisting the regulator in identifying potential sources of material risks, it illustrates the fact that incentives (such as the reduction in the levels of capital to be retained by institutions), which have the potential to facilitate market based regulation (through non binding regulations), may not necessarily serve as suitable means in the realisation of some of Basel II’s objectives – namely the achievement of “prudentially sound, incentive-compatible and risk sensitive capital requirements”. The paper also attempts to raise the awareness that the operation of risk mitigants does not justify a reduction in the capital levels to be retained by banks – since banks operating with risk mitigants could still be considered inefficient operators of their management information systems (MIS), internal control systems, and risk management processes. The fact that banks possess risk mitigants does not necessarily imply that they are complying with Basel Core Principles for effective supervision (particularly Core Principles 7 and 17) – as the paper will seek to demonstrate. Core Principle 7 not only stipulates that “banks and banking groups satisfy supervisory requirements of a comprehensive management process, ensure that this identifies, evaluates, monitors and controls or mitigates all material risks and assesses their overall capital adequacy in relation to their risk profile, but that such processes correspond to the size and complexity of the institution.” Certain incentives which assume the form of capital reductions are considered by the Basel Committee to “impose minimum operational standards in recognition that poor management of operational risks (including legal risks) could render such risk mitigants of effectively little or no value and that although partial mitigation is rewarded, banks will be required to hold capital against residual risks”. Information disclosure should be encouraged for several reasons, amongst which include the fact that imperfect information is considered to be a cause of market failure – which “reduces the maximisation potential of regulatory competition”, and also because disclosure requirements would contribute to the reduction of risks which could be generated when granting reduced capital level rewards to banks who may have poor management systems.
    Keywords: incentives; risk; mitigants; Basel; regulation; regulatory competition; disclosure
    JEL: D53 K2 F3 E5 D82
    Date: 2010–02
  3. By: Leigh Hancher; Adrien de Hauteclocque
    Abstract: This chapter aims to analysis the new dynamics at work in EU energy regulation. Since the publication of the European Commission’s ‘Sector Inquiry Report’ in January 2007, European energy companies have felt the cold wind of competition law - many for the first time. In addition, national competition authorities (NCAs) have been actively pursuing abusive market practices - sometimes making innovative use of competition law in the process. Certain energy giants have agreed to unbundle their transmission networks - even when their national governments opposed the inclusion of ownership unbundling in the draft ‘Third Package’ of electricity and gas legislation. In parallel, the Third Package envisages the creation of a new regulatory agency - ACER - to co-ordinate technical crossborder regulatory issues in the internal market. So who will be in the driving seat in the next decade - and will co-ordinated regulatory powers be the preferred approach to market design? Will regulatory rules co-exist alongside competition based controls or will the latter gradually supersede the former? This chapter will examine these critical issues.
    Keywords: Antitrust, Third Legislative Package, ACER, European Union
    Date: 2010–01–14
  4. By: Garry Schinasi
    Abstract: Visiting Scholar Garry Schinasi examines the European proposals for the creation of both a European Systemic Risk Board (ESRB) to oversee macroprudential regulation and a European System of Financial Supervision (ESFS) to strengthen microprudential supervision. He argues that structural vulnerabilities of this regulatory framework need to be addressed to ensure that the early-warning systems will be adequate to avoid future crises. Specifically, Schinasi points to the fact that the ESRB lacks binding powers to enforce regulation as well as the lack of a legislative framework to resolve the insolvency of systemically important financial institutions (SIFIs).
    Date: 2009–10
  5. By: Adrien de Hauteclocque; Vincent Rious
    Abstract: Following the grant of exemptions from the EC rules on third party access to the interconnectors BritNed, Estlink and East West Cables, the regulation of merchant transmission investment has become an important issue in the electricity sector. The creation of a new Agency for the Cooperation of Energy Regulators (ACER), which will enjoy decision powers on this issue, is therefore a unique occasion to question and maybe re-design the current strategy. This paper shows that the recent decisions evidence a strong bias against dominant generators and that incumbent or new entrant TSOs are generally favoured by European regulators and the European Commission. It argues that this strategy is misguided as it fails to recognize both the conflict of interest between the regulated and non-regulated activities of incumbent TSOs and the new incentives of generators. The opportunity to let dominant generators undertake merchant investment is then investigated and we find that it is generally welfare-improving as long as potential abuses of dominance can be mitigated. To deter possible anti-competitive effects, the paper proposes a new and feasible allocation of regulatory powers based on a clear demarcation between the monitoring of transparency requirements by ACER and antitrust enforcement by the European Commission.
    Keywords: Merchant transmission investment, European Union, third energy package
    Date: 2009–11–04
  6. By: Christopher S. Decker (Department of Economics and Real Estate, College of Business Administration, University of Nebraska at Omaha); John W. Maxwell (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: In this paper we construct a ranking of states based on their proclivity to inspect facilities for environmental compliance. Our measure utilizes state-level inspections data supplied by the US Environmental Protection Agency. After developing our ranking, we use it to predict state-level growth in manufacturing establishments. In doing so, we find support for the notion that enforcement intensity adversely impacts such growth. Our results offer insight into why existing studies that examine the impact of environmental regulation on location and growth produce inconsistent results.
    Keywords: Monitoring and Enforcement, Environmental Regulations, Business Formation Growth
    JEL: K32 Q28 R58
    Date: 2010–01
  7. By: Fabiano Schivardi; E. Viviano
    Abstract: <p>The 1998 reform of the Italian retail trade sector delegated the regulation of entry of large stores to the regional governments. We use the local variation in regulation to determine the effects of entry barriers on sectoral performance. We address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. We also control for differences in trends and for area-wide shocks. We find that entry barriers are associated with substantially larger profit margins and lower productivity of incumbent firms. Liberalizing entry has a positive effect on investment in ICT, increases employment and compresses labor costs in large shops. In areas with more stringent entry regulation, lower productivity coupled with larger margins results in higher consumer prices.</p>
    Keywords: entry barriers; productivity growth; retail trade
    JEL: L81 L5 L11
    Date: 2009
  8. By: François Lévêque
    Abstract: This paper is the joint position taken by nine academics on the French debate introduced by the “Rapport de la commission présidée par Paul Champsaur sur l’organisation du marché de l’électricité” on April 2009. In order to reform the French reform, the Champsaur commission has made three main recommendations: (i) withdrawing the current retail administered tariff for business (ii) maintaining retail administered tariffs for households (iii) introducing a wholesale administered tariff on electricity from nuclear power generation. This rapport invites discussions on the French market design. Our academic joint position challenges these propositions. The authors welcome to the fact the commission proposes to abandon the tariff for business as very complex to implement (and hence costly) and freezes competition. However, authors have reservations about the other two recommendations. They are mainly based on the classical two-prong economic test to support a new regulation: (i) assessing its costs and benefits to ensure the latter offsets the former; (ii) comparing the recommended regulation with alternative instruments to verify that it is the best choice.
    Keywords: Champsaur commission,French Electricity market reform,Nuclear industry reform,Market design,redistribution of scarcity rents
    Date: 2009–07–16
  9. By: Chris Hanretty; Christel Koop
    Abstract: Although regulatory agencies have been created all over the world in the past decade, their design may vary considerably. In this report, we offer more insight into the variation in design by presenting the findings of a worldwide survey among regulators in seven policy areas: competition, energy, environmental, financial market, food safety, pharmaceutical and telecommunication policy. On the basis of the answers of 175 regulatory agencies from 88 countries, we conclude that although their design shows huge variation, a picture of the modal regulator can be drawn. The modal regulator is managed by a head and board members who serve for a fixed and renewable term of five years, who can be dismissed for reasons unrelated to their decisions, who cannot hold other offices in the public administration, and who need to be formally independent. The regulator is typically obliged to submit to politicians an annual report, whilst politicians can give the regulator policy instructions, can start an inquiry into the regulator’s operations, and can control the budget. Finally, the regulator is formally independent, has exclusive competence, decides on its own internal organisation and personnel policy, and makes policy decisions which cannot be reversed by another body than a court.
    Keywords: administrative law, structure of government, public administration, independent regulatory agencies
    Date: 2009–11–19
  10. By: Vincent Rious
    Abstract: The Clingendael International Energy Programme (CIEP), the Loyola de Palacio Chair on EU Energy Policy of the Robert Schuman Centre of Advanced Studies (European University Institute), the Fondazione Eni Enrico Mattei (FEEM) and Wilton Park Conferences (WPC) organize a four-tier program for discussing the potential for a smart EU Energy Policy. The Florence workshop is then the first one in a series of four where academics will discuss the various interactions between the three objectives of the EU Energy Policy with stakeholders from governments, regulators and the industry. This workshop addressed the internal energy market design and its consequences for energy supply security and climate change policies. The workshop gathered over one day and a half 42 experts to discuss current problems and possible solutions for a smart EU Energy Policy.
    Keywords: Smart energy policy,3d EU directive,Market design,Renewable energy,gas reform
    Date: 2009–07–15
  11. By: Agnès Bénassy-Quéré; Benoît Coeuré; Pierre Jacquet; Jean Pisani-Ferry
    Abstract: Bruegel Director Jean Pisani-Ferry, with Agnès Bénassy-Quéré (CEPII, University Paris-Ouest and Ecole Polytechnique, Paris), Benoît Coeuré (Ecole Polytechnique, Paris) and Pierre Jacquet (ENPC, Paris, and Agence Française de Développement) provide an in-depth analysis of the financial crisis. The authors review the main causes of the crisis, pointing to three different, non-mutually exclusive lines of explanation: wrong incentives in the financial sector, unsustainable macroeconomic outcomes, and misunderstood and mismanaged systemic complexity. They also discuss supervisory and regulatory reform going forward, including an examination of the issues of moral hazard, the separation of retail and investment banking, the desirable size of financial institutions, risk management, the role of central banks, and other issues. This working paper was previously published as CEPII (Centre d'études prospectives et d'informations internationales) working document 2009-28.
    Date: 2009–12
  12. By: Daniel Albalate (Faculty of Economics, University of Barcelona); Germà Bel (Faculty of Economics, University of Barcelona)
    Abstract: The regulation of speed limits in the US had been centralized at the federal level since 1974, until decisions were devolved to the states in 1995. However, the centralization debate has reemerged in recent years. Here, we conduct the first econometric analysis of the determinants of speed limit laws. By using economic, geographic and political variables, our results suggest that geography -which affects private mobility needs and preferences- is the main factor influencing speed limit laws. We also highlight the role played by political ideology, with Republican constituencies being associated with higher speed limits. Furthermore, we identify the presence of regional and time dependence effects. By contrast, poor road safety outcomes do not impede the enactment of high speed limits. Overall, we present the first evidence of the role played by geographical, ideological and regional characteristics, which provide us with a better understanding of the formulation of speed limit policies.
    Keywords: Speed Limit Laws; Transport Policy; Social Preferences; Policy Analysis.
    Date: 2010–01
  13. By: Xian HE; Georg ZACHMANN
    Abstract: The creation of competitive wholesale electricity markets allows to evaluate the “arbitrage value” of an electricity storage unit, which stems from buying and storing electricity when prices are low, and selling it when prices are high. The focus of this paper is to demonstrate that the arbitrage value can be highly sensitive with respect to the dimensioning of an electricity storage unit. A simulation model is explored to calculate the arbitrage value of different storage units by finding the optimal hourly operating strategy during one-year period. The results of simulation show that optimizing the dimensioning of a storage unit is as important as choosing the fittest technology. Furthermore we provide evidence that the optimal set-up of a storage unit can adapt to exogenous factors such as grid tariff and local electricity price characteristics. These findings suggest that the maximisation of market value of electricity storage should be based on the optimisation of the dimensioning of the storage unit in specific economic and regulatory environment.
    Keywords: Electricity storage,arbitrage value,regulation
    Date: 2010–02–08

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