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on Regulation |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research) |
| Abstract: | To understand the appropriate regulatory response to the crisis, we start from the basic market failures that justify regulation in financial markets. Neglecting these first principles contributed to the market and regulatory failures. Regulation that induces better outcomes through creating correct incentives for market participants is the key to reform. A combination of micro and macro prudential regulation can moderate procyclicality, information failure and market power. Better national and global coordination of regulators is also required. Global prudential standards can push financial firms to choose safe over risky strategies, by removing the moral hazard from bailouts, and assuring that a competitor is not adopting risky strategies either. Universal application of basic standards prevents regulatory arbitrage. A pure principles-based regulatory approach maybe too flexible, but principle-based rules retain sufficient operational flexibility and universality. This analysis is applied to regulation in emerging market economies (EMEs), where development of financial markets is a major regulatory goal along with stability. |
| Keywords: | market failures; incentives; procyclicality; coordination; rules versus principles; development |
| JEL: | G18 G28 D73 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2010-002&r=reg |
| By: | Paul Madden |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:man:sespap:1007&r=reg |
| By: | Jaime Hurtubia Torres; Claudio Sardoni (Department of Economics,Sapienza University of Rome) |
| Abstract: | The paper argues that policymakers bail out banks with financial problems to avoid the costs of financial repression. After financial liberalization and when risk is verifiable, in some circumstances policymakers can commit to policies that discipline banks ex-ante and ex-post, by providing bailout to conservative banks and threatening the takeover of risky banks. When these policies are time consistent, regulatory policies to deal with moral hazard ex-ante, like for example prudential regulation, become redundant and policymakers refrain from implementing them. |
| JEL: | G21 G28 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dsc:wpaper:8&r=reg |
| By: | Nyström, Kristina (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper discusses the interrelationship between business regulations and entrepreneurial activities. Most empirical studies find that business regulations have a negative effect on the amount of entrepreneurial activities in an economy. In addition, we argue that the regulatory quality and amount of business regulation may also be influenced by the amount of entrepreneurial activities in the society since policymakers and bureaucrats tend to respond to changing conditions in the society. In the empirical part of the paper, data for 23 OECD countries for the period 1972-2002 in order to elaborate on the interrelationship between entrepreneurship and the quality of business regulations. The empirical findings indicate that there is a positive relationship between entrepreneurship, and the quality of business regulations. |
| Keywords: | entrepreneurship; red tape; business regulation |
| JEL: | L51 |
| Date: | 2010–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0225&r=reg |
| By: | Maria Claudia Lopez (School of Environmental and Rural Studies, Bogota Colombia); James J. Murphy (Department of Economics, University of Alaska, Anchorage); John M. Spraggon; John K. Stranlund (Department of Resource Economics, University of Massachusetts, Amherst) |
| Abstract: | This paper presents the results from a series of framed field experiments conducted in fishing communities off the Caribbean coast of Colombia. The goal is to investigate the relative effectiveness of exogenous regulatory pressure and pro-social emotions in promoting cooperative behavior in a public goods context. The random public revelation of an individual’s contribution and its consequences for the rest of the group leads to significantly higher public good contributions and social welfare than regulatory pressure, even under regulations that are designed to motivate fully efficient contributions. |
| Keywords: | public goods, field experiments, pro-social emotions, social dilemma, regulation, enforcement. |
| JEL: | C93 H41 Q20 Q28 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:dre:wpaper:2009-5&r=reg |
| By: | Vidar Christiansen; Stephen Smith (Institute for Fiscal Studies and University College London) |
| Abstract: | <p>Much of the literature on externalities has considered taxes and direct regulation as alternative policy instruments. Both instruments may in practice be imperfect, reflecting informational deficiencies and other limitations. We analyse the use of taxes and regulation in combination, to control externalities arising from individual consumption behaviour. We consider cases where taxes are either imperfectly differentiated to reflect individual differences in externalities, or where some consumption escapes taxation. In both cases we characterise the optimal instrument mix, and show how changing the level of direct regulation alters the optimal externality tax.</p> |
| Keywords: | externalities, Pigouvian taxes, regulations |
| JEL: | H21 H23 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:09/16&r=reg |
| By: | Caprio, Gerard, Jr. |
| Abstract: | Most explanations of the crisis of 2007-2009 emphasize the role of the preceding boom in real estate and asset markets in a variety of advanced countries. As a result, an idea that is gaining support among various groups is how to make Basel II or any regulatory regime less pro-cyclical. This paper addresses the rationale for and likely contribution of such policies. Making provisioning (or capital) requirements countercyclical is one way potentially to address pro-cyclicality, and accordingly it looks at the efforts of the authorities in Spain and Colombia, two countries in which countercyclical provisioning has been tried, to see what the track record has been. As explained there, these experiments have been at best too recent and limited to put much weight on them, but they are much less favorable for supporting this practice than is commonly admitted. The paper then addresses concerns and implementation issues with countercyclical capital or provisioning requirements, including why their impact might be expected to be limited, and concludes with recommendations for developing country officials who want to learn how to make their financial systems less exposed to crises. |
| Keywords: | Banks&Banking Reform,Access to Finance,Financial Intermediation,Debt Markets,Emerging Markets |
| Date: | 2010–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5198&r=reg |
| By: | Eva Niesten |
| Abstract: | The increase in the distributed generation of electricity, with wind turbines and solar panels, necessitates investments in the distribution network. The current tariff regulation in the Dutch electricity industry, with its ex post evaluation of the efficiency of investments and the frontier shift in the x-factor, delays these investments. In the unbundled electricity industry, the investments in the network need to be coordinated with those in the distributed generation of electricity to enable the DSOs to build enough network capacity. The current Dutch regulations do not provide for a sufficient information exchange between the generators and the system operators to coordinate the investments. This paper analyses these two effects of the Dutch regulation, and suggests improvements to the regulation of the network connection and transportation tariffs to allow for sufficient network capacity and coordination between the investments in the network and in the generation of electricity. These improvements include locally differentiated tariffs that increase with an increasing concentration of distributed generators. |
| Keywords: | Distributed electricity generation; network investments; regulation |
| JEL: | L51 L94 Q42 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:141&r=reg |
| By: | Hurkens, Sjaak (IESE Business School); Lopez, Angel (IESE Business School) |
| Abstract: | We re-examine the literature on mobile termination in the presence of network externalities. Externalities arise when firms discriminate between on- and off-net calls or when subscription demand is elastic. This literature predicts that profit decreases and consumer surplus increases in termination charge in a neighborhood of termination cost. This creates a puzzle since in reality we see regulators worldwide pushing termination rates down while being opposed by network operators. We show that this puzzle is resolved when consumers¿ expectations are assumed passive but required to be fulfilled in equilibrium (as defined by Katz and Shapiro, AER 1985), instead of being rationally responsive to non-equilibrium prices, as assumed until now. |
| Keywords: | Networks; Rational Expectations; Access Pricing; Interconnection; Regulation; Telecommunications; |
| JEL: | K23 L51 L96 |
| Date: | 2010–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0850&r=reg |
| By: | BOYER, Marcel; PORRINI, Donatella |
| Abstract: | We focus in this paper on the effects of court errors on the optimal sharing of liability between firms and financiers, as an environmental policy instrument. Using a structural model of the interactions between firms, financial institutions, governments and courts we show, through numerical simulations, the distortions in liability sharing between firms and financiers that the imperfect implementation of government policies implies. We consider in particular the role played by the efficiency of the courts in avoiding Type I (finding an innocent firm guilty of inappropriate care) and Type II (finding a guilty firm innocent of inappropriate care) errors. This role is considered in a context where liability sharing is already distorted (when compared with first best values) due not only to the courts’ own imperfect assessment of safety care levels exerted by firm but also to the presence of moral hazard and adverse selection in financial contracting, as well as of noncongruence of objectives between firms and financiers on the one hand and social welfare maximization on the other. Our results indicate that an increase in the efficiency of the court system in avoiding errors raises safety care levels, thereby reducing the probability of accident, and allowing the social welfare maximizing government to impose a lower liability [higher] share for firms [financiers] as well as a lower standard level of care. |
| Keywords: | Environmental Policy, Court Efficiency, Liability Sharing, Regulation, Incomplete Information |
| JEL: | D82 G32 K13 K32 Q28 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:05-2010&r=reg |
| By: | Ryo Kambayashi |
| Abstract: | The purpose of this chapter is to take a closer look at the role of legal institutions and their impact on human capital accumulation using the Japanese case of dismissal regulation as an example. In the Japanese labor markets, so called the Doctrine of Abusive Dismissal has been thought to be responsible for controlling dismissal behaviors. With careful examination of court cases and statistics, this chapter shows, the Doctrine has grown out of industrial conflicts in the past and it has been useful in resolving disputes revolving around mass layoffs and, by fostering communication between management and labor regarding firms' business conditions, helped to smooth the rapid adjustment of employment in Japan. In other words, in order to achieve a relationship of mutual trust between employer and employees, the Doctrine created social norms encouraging the two sides to reach agreement within the workplace, firm, or organization. This guidance provided by the Doctrine contrasts with the direct constraints imposed on the contents of labor contracts by, for example, the Labor Standards Act. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd09-119&r=reg |
| By: | Mauro Vigani; Valentina Raimondi; Alessandro Olper |
| Abstract: | This paper deals with the quantification of GMO regulations on bilateral trade flows. A composite index of the 慶omplexity?of such regulations for sixty countries as well as an 憃bjective?score for six GMO regulatory sub-dimensions has been developed. Using a gravity model, we show how bilateral 憇imilarity?in GMO regulations, affect trade flows for the composite index and its components. Results show that bilateral distance in GMO regulations negatively affect trade flows, especially as an effect of labeling policies, approval process and traceability systems. Interesting, the trade reduction effect induced by GMO standards increase by a factor of four when GMO regulations is treated as endogenous to trade flows. This pattern is consistent with an international environment where large importing countries 慸ictate?the rules of the game to developing countries. |
| Keywords: | GMO standards, Harmonization, Trade Flow, Gravity Model, Endogeneity |
| JEL: | F13 F14 Q13 Q18 Q17 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lic:licosd:25510&r=reg |
| By: | Morgan, Peter (Asian Development Bank Institute) |
| Abstract: | The implications for financial stability of lightly regulated and highly leveraged financial institutions such as hedge funds and private equity funds, together with innovative financial products such as derivatives and asset-backed securities, remain a subject of controversy, especially in the current global financial crisis, where issues of systemic risk have not only national, but regional and global implications. This policy brief examines hedge funds, private equity funds, and innovative financial products, particularly collateralized debt obligations and asset-backed securities, including their overall structure, their role in the development of the current global financial crisis, and what changes are needed in the global financial architecture related to these institutions and products to strengthen financial stability going forward. |
| Keywords: | hedge fund financial stability; financial crisis unregulated funds; unregulated financial products implications |
| JEL: | F00 |
| Date: | 2009–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbipb:0030&r=reg |
| By: | Reint Gropp (Department of Finance, Accounting and Real Estate, European Buisness School, Germany); Hendrik Hakenes (Institut für Finanzmarkttheorie, Leibniz Universität Hannover, Germany); Isabel Schnabel (Chair of Financial Economics, Johannes Gutenberg-Universität Mainz, Germany) |
| Abstract: | This paper empirically investigates the effect of government bail-out policies on banks outside the safety net. We construct a measure of bail-out perceptions by using rating information. From there, we construct the market shares of insured competitor banks for any given bank, and analyze the impact of this variable on banks’ risk-taking behavior, using a large sample of banks from OECD countries. Our results suggest that government guarantees strongly increase the risk-taking of competitor banks. In contrast, there is no evidence that public guarantees increase the protected banks’ risk-taking, except for banks that have outright public ownership. These results have important implications for the effects of the recent wave of bank bail-outs on banks’ risk-taking behavior. |
| Keywords: | Government bail-out, implicit and explicit government guarantees, banking competition, risk-taking |
| JEL: | G21 G28 L53 |
| Date: | 2010–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1003&r=reg |
| By: | John Stranlund (Department of Resource Economics, University of Massachusetts Amherst) |
| Abstract: | This paper considers the optimal design of an emissions trading program that includes a safety valve tax that allows pollution sources to escape the emissions cap imposed by the aggregate supply of emissions permits. I demonstrate that an optimal hybrid emissions trading/emissions tax policy involves a permit supply that is strictly less than under a pure emissions trading scheme and a safety valve tax that exceeds the optimal pure emissions tax as long as expected marginal damage is an increasing function. While the expected level of emissions under a hybrid policy may be more or less than under pure emissions trading or a pure emissions tax, under the assumption that uncertainty about aggregate marginal abatement costs is symmetric the most likely outcome is that emissions will turn out to be less under the hybrid. Finally, a steeper expected marginal damage function calls for higher permit supply and safety valve, which reduces expected aggregate emissions and the probability that the safety valve will be employed. |
| Keywords: | Emissions Taxes, Emissions Trading, Uncertainty, Safety Valve, Hybrid Emissions Control |
| JEL: | L51 Q28 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:dre:wpaper:2009-4&r=reg |