nep-reg New Economics Papers
on Regulation
Issue of 2010‒06‒18
eight papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Strategic Effects of Regulatory Capital Requirements in Imperfect Banking Competition By Eva Schliephake; Roland Kirstein
  2. Regulatory Governance Costs in Network Industries: Observations in Postal Regulation By Martin Maegli; Christian Jaag; Matthias Finger
  3. Financial Regulation in a Changing World: Lessons from the Recent Crisis By Gerard Caprio
  4. Gender at work: Class action and financial markets: Insights from law and economics By Ramello, Giovanni B.; Porrini, Donatella
  5. The insurance industry in Brazil: a long-term view By Marcelo de Paiva Abreu; Felipe Tamega Fernandes
  6. Prospects of liberalization for S&T policies in Russia: institutional analysis By Kirdina, Svetlana
  7. The interaction of universal service costing and financing in the postal sector: A calibrated approach By Christian Jaag; Urs Trinkner
  8. Assessing the Impacts of Environmental Regulations on the Food Processing Industry in Vietnam By Le Ha Thanh

  1. By: Eva Schliephake (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Roland Kirstein (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This paper analyses the competitive effects of capital requirement regulation on an oligopolistic credit market. In the first stage, banks choose the structure of refinancing their assets, thereby making an imperfect commitment to a loan capacity as a function of the chosen degree of capitalization and the regulatory capital requirement. In the second stage, loan price competition takes place. It is shown that a capital requirement regulation may not only decrease the supply of credit through an increased marginal cost effect but can have an additional collusive enhancing effect resulting in even higher credit prices and increased profits for the banks.
    Keywords: equity regulation, oligopoly, capacity constraint
    JEL: G21 K23 L13
    Date: 2010–05
  2. By: Martin Maegli; Christian Jaag; Matthias Finger
    Abstract: The various actors in the regulated industries relate to each other within a broader institutional framework, i.e., by way of formal and informal rules. An important role in the implementation of liberalization processes is given to regulation and thus to regulatory institutions. The rationale for regulation is its positive effect on society by correcting market failures. But regulatory intervention also causes costs which we call “costs of regulatory governance”. These costs result from negative consequences caused by regulatory requirements and from the implementation of regulatory instruments. These costs will depend upon the formal and informal rules among the involved actors, upon the allocation of property rights among these actors, as well as upon the various principal-agent or more generally contractual relationships among these actors. We distinguish between direct and indirect costs of regulation: Direct costs occur in relation with the institutional design of the regulatory framework and the behavior of actors. Indirect costs result from distortive incentives and finally turn out in an inefficient supply of goods and services. Using the example of the Swiss postal market we offer a first outline of a possible application of the framework. In this article we neither intend to quantify regulatory costs nor do we question regulation per se. We rather present a qualitative framework which helps to structure a discussion about regulatory challenges in network industries.
    Keywords: Governance costs, Network industries, Postal market
    JEL: L51
    Date: 2010–05
  3. By: Gerard Caprio (Williams College)
    Abstract: The current crisis is leading many to re-think the role of finance and how it snew. This paper reviews what was regarded as the conventional wisdom on financial regulation prior to the 2007 onset of the crisis, briefly recounts some of the main factors behind the events of the 2007-09 years, and then turns to lessons for regulatory reform. At some point in the 1990s, the financial systems of high-income countries seemed to be functioning well and withstood some significant shocks, yet by 2007 much had changed. However, the regulatory structure did not change in response, and in fact eased in such a way as to exacerbate the instability that was subsequently experienced. A key theme is that financial regulation needs to be more dynamic, taking account of financial innovations and how they affect the sector. No such approach to regulation seems possible without greater accountability for regulators and attention to the incentives for those in the sector and for those who regulate it.
    Keywords: Financial crisis, Securitization, Regulation and Supervision, Safety Nets
    JEL: G21 G28 G32
    Date: 2009–09
  4. By: Ramello, Giovanni B.; Porrini, Donatella
    Abstract: According to the law and economics approach, pure economic loss is a private loss that is not socially relevant but simply implies a redistribution of wealth. Consequently, wrongful behavior that induces reallocation of costs and benefits with no consequences on social welfare is not considered socially harmful, so is not necessarily subject to compensation. Since pure economic loss is very often financial, the above reasoning also applies to financial markets. However, the same law and economics arguments suggest that in financial markets, the policy of internalizing pure economic loss by means of class actions can be more far-sighted than simply compensating the victims: the liability system has the particular feature of producing deterrence and driving the market towards an efficient outcome. In this vein, the paper argues that class action intended as a complementary ex-post regulatory device can play a significant role in addressing a failure that ex-ante regulation has not. This is coherent with the law and economics tradition that interprets tort law remedies as a solution for internalizing externality and providing the correct incentive to the markets.
    Keywords: class action, pure economic loss, regulation, liability, deterrence
    JEL: K41 K13 H41
    Date: 2010–06
  5. By: Marcelo de Paiva Abreu (Pontifical Catholic University of Rio de Janeiro); Felipe Tamega Fernandes (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: This paper surveys the formation and development of insurance business in Brazil. It describes its origins, from the colonial times and imperial era to recent events. Particular attention is given to regulatory changes, showing how they evolved in response to macroeconomic shocks that affected the Brazilian economy during this period.
    Keywords: Insurance, Brazil, Regulation
    JEL: G22 G38 L50 N46
    Date: 2010–06
  6. By: Kirdina, Svetlana
    Abstract: The objective of the paper is to define the trajectory of economic institutional reforms in Russia as a framework of S&T policies. The methodology of this research is based upon the institutional matrices theory (Кирдина, 2001; Kirdina, 2003). The hypothesis claims that the “institutional nature” of Russia defines its prospects of liberalization and needs the active implementation of liberal market institutions policy only within a framework of modernization of redistributive state economic system. Modern S&T policy in Russia demonstrates the implications of such kind of development. The new institutional form of State Corporation that is non-profit organization under government regulation has been widely developed for last 3 years. The main sphere of State Corporations activity is high-tech development. The share of State Corporations in the state budget is more than 20% and it is constantly increasing.
    Keywords: institutional matrices theory; X- and Y-economies; Russia; state regulation; S&T policy
    JEL: O32 K11 P00 H11 B52 D42 E61 O52 B41
    Date: 2010–05–24
  7. By: Christian Jaag; Urs Trinkner
    Abstract: The financing of universal service provision in the postal sector has traditionally relied on granting the universal service provider a reserved area. Together with growing electronic substitution, current liberalization policies promoting competitive entry may put the traditional universal service at risk. Hence, there is an increased interest in knowing the cost of universal service provision. The third EC postal directive proposes a calculation approach to separately determine the net cost of a universal service obligation and to compensate the universal service provider (USP). This paper discusses the interaction between universal service costing and financing and shows that the EC approach may result in distorted results. It also quantifies the effects based on a model calibration with Swiss data. The results show that separate costing and financing leads to a considerable under-compensation of the USP if there is a compensation fund to which every operator contributes. The USP is over-compensated if it is exempt from contributing to the fund (pay or play mechanism). The problem of under- or overcompensation can be resolved by an integrated computation of the net cost that includes the competitive effects of the financing mechanism. Such an integrated approach results in a fair compensation of the USP.
    Keywords: Regulation, Post, Universal service obligation, Financing
    JEL: L51
    Date: 2010–05
  8. By: Le Ha Thanh (Faculty of Environmental, Natural Resources and Urban Economics & Management, Hanoi National Economics University)
    Abstract: This study assesses the effectiveness of Decree 67, a key piece of the country's 'polluter-pays' environmental legislation. Industrial waste-water pollution is one of the most significant environmental problems affecting Vietnam. Although the country has implemented a range of anti-pollution legislation, the problem has not been resolved and companies continue to pollute on a large scale. This makes it important to understand why current environmental legislation is not working and what must be done to improve the situation. The study looks at the impact of Decree 67 on food processing companies in Hanoi and Ho Chi Minh City. The study finds that, although the legislation has been successful in raising environmental awareness among businesses, it has been less successful at stopping pollution. Overall, Decree 67 has had a minimal impact and is poorly implemented and enforced. The study shows that many company owners and managers have an adequate knowledge of environmental protection. It is also clear that companies do not consider environmental protection a top priority. Overall, environmental costs are not being fully internalized by businesses. The study makes a number of suggestions for how Decree 67 can be made more effective. Recommendations include reducing the scope of the legislation to make it easier to implement and a phased increased in the charges that are levied on polluting.
    Keywords: waste pollution, Vietnam
    Date: 2010–03

This nep-reg issue is ©2010 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.