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on Regulation |
| By: | Williams III, Roberton C. |
| Abstract: | In recent years, cases in which state governments chose to override federal environmental regulation with tighter regulations of their own have become increasingly common, even for pollutants that have substantial spillovers across states. This paper argues that this change arose at least in part because of a shift in the type of regulation used at the federal level, from command-and-control regulation toward more incentive-based regulation. Under an incentive based federal regulation, a state imposing a tighter regulation will bear only part of the additional cost, and thus has more incentive to tighten regulation than it does under federal command-and control. This difference helps to explain observed patterns of regulation. In addition, it has implications for the choice of regulatory instruments. For a pollutant that causes both local and spillover damage, a federal pollution tax is likely to yield a more efficient outcome than federal command-and-control policy or a federal system of tradable permits. |
| Keywords: | Regulatory Reform, Environment |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:reg:wpaper:619&r=reg |
| By: | Gerard Caprio (Williams College) |
| 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 procyclical. This paper addresses the rationale for and likely contribution of such policies. Making provisioning (or capital) requirements countercyclical is one way potentially to address procyclicality, 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: | Financial crisis, Securitization, Regulation and Supervision, Safety Nets |
| JEL: | G21 G28 G32 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2009-06&r=reg |
| By: | Michael , Delgado; Neha , Khanna |
| Abstract: | We present a model in which firms voluntarily abate emissions in a market that values environmental quality such that firms can charge a premium for goods that are environmentally friendly. Our results establish conditions under which mandatory abatement crowds out voluntary abatement, or, alternatively, provides an incentive for firms to increase their level of voluntary abatement in order to maintain product differentiation. In addition, we identify cases under which firms that do not abate voluntarily would support mandatory abatement if they are able to collectively pass off (at least part of) the costs of abatement to consumers. Our model predicts that regulatory policies that ignore voluntary abatement are likely to over-regulate non-abating firms compared to the level of regulation that accounts for voluntary abatement if consumer income levels in the green market are relatively high. If consumer income levels in the green market are relatively low, regulation may be ineffective in improving overall environmental quality. |
| Keywords: | Voluntary Pollution Abatement; Regulation; Markup |
| JEL: | K32 Q52 Q58 |
| Date: | 2010–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:25026&r=reg |
| By: | Lars Gårn Hansen (Institute of Food and Resource Economics, University of Copenhagen); Frank Jensen (Institute of Food and Resource Economics, University of Copenhagen); Linda Nøstbakken (University of Alberta School of Business) |
| Abstract: | Individual quotas are frequently used in the management of renewable resources. However, in many industries there is concern about the basic eectiveness of quotas due to non-compliance. We develop an enforcement model of a quota-regulated resource and focus on a situation with signicant non-compliance and exogenous constraints on nes and enforcement budget. We propose a new enforcement system based on self-reporting of excess extraction and explicit dierentiation of inspection rates based on compliance history. We show that such a system increases the eectiveness of quota management by allowing the regulator to implement a wider range of aggregate extraction targets than under the traditional enforcement system, while ensuring an ecient allocation of aggregate extraction. |
| Keywords: | Non-compliance, Self-reporting, Enforcement, Quota regulation, Renewable resource management |
| JEL: | D61 H0 Q20 Q22 Q28 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:foi:wpaper:2010_10&r=reg |
| By: | Rohling, Moritz |
| Abstract: | Regulating inter-country externalities, like climate change, raises various enforcement problems. It is often argued that international pricebased regulations (e.g. emission taxes) are more difficult to enforce than quantity-based regulations (e.g. tradable pollution permits). In this paper, we analyze the relative performance of price-based and quantity-based instruments for cases where costs and benefits are uncertain and enforcement of quantity regimes is stricter than for price-based regimes. We show that under these conditions, instrument choice solely based on the relative slopes of the marginal costs can be inefficient. If enforcement probabilities differ, rational policy choice should also take into account the level of the marginal benefit curve, as well as institutional parameters. In contrast to earlier analyses on Prices vs. Quantities, we find that the difference in welfare for both policy instruments also depends on the variance of the marginal abatement costs. Furthermore, numerical simulations of our stylized model suggest that, for climate policies, quantity-regulations might well be preferable to price-based approaches after all. -- |
| Keywords: | market-based instruments,incomplete enforcement,environmental regulation,uncertainty |
| JEL: | D8 L51 K42 Q58 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec10:24&r=reg |
| By: | Trillas, Francesc (IESE Business School) |
| Abstract: | This paper presents new developments in the economics of federalism to analyze the determinants of specific investments in network industries and the interaction between structural and behavioral regulation. Central or federal policy making is more focused and specialized and makes it more difficult for interest groups to organize. Under some conditions, however, central powers will be associated with more underinvestment than local powers. The latter cannot afford specific regulation due to high fixed administrative costs, but may use other policy objectives as a commitment device. When technology allows the introduction of competition in some segments, the possibilities for organizing the institutional architecture of regulation expand. Liberalization will typically require institutional cooperation, but cooperation has costs and may be inhibited by distributional concerns. |
| Keywords: | Network Industries; Regulatory Jurisdiction; Cooperation; Liberalization; |
| Date: | 2010–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0859&r=reg |
| By: | Chen-Min Hsu; Chih-Feng Liao (Asian Development Bank Institute) |
| Abstract: | This paper investigates the prevailing financial regulatory structures and impact of the current financial turmoil on banking performance in four Asian economies: the People's Republic of China (PRC); Hong Kong, China; Singapore; and Taipei,China. Both the PRC and Hong Kong, China operate under a fragmented financial regulatory structure, while Singapore and Taipei,China have integrated structures. We examine the role of an integrated financial regulatory structure in helping financial institutions mitigate the impact of the financial crisis, using financial indicators of banks’ capital structure and operating performance in these four economies between 2003 and 2008. Our analysis of the indicators reveals that banking performance under a fragmented financial regulatory structure is not worse than under integrated regulation. This implies that financial regulatory structure is not the main reason why Asian financial institutions suffered only limited losses from the current global financial crisis. However, given the growing complexity of the global financial system, and the relative weakness of current financial regulatory structures in Asia, this paper suggests that East Asian governments should refer to the Lamfalussy Process in the European Union and set up an Asia Financial Stability Dialogue to facilitate policy coordination for regional financial sector stability and development. |
| Keywords: | China, Hong Kong, Singapore, Taiwan, financial regulatory structures, banking, finance, Asia Financial Stability Dialogue |
| JEL: | F42 G18 G21 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:2287&r=reg |
| By: | Isabel Argimón (Banco de España); Jenifer Ruiz (European University Institute, Florence) |
| Abstract: | The EU's transposition of Basel II into European law has been done through the Capital Requirements Directive (CRD). Although the Directive establishes, in general, uniform rules to set capital requirements across European countries, there are some areas where the Directive allows some heterogeneity. In particular, countries are asked to choose among different possibilities when transposing the Directive, which are called national discretions (ND). The main objective of our research is to use such observed heterogeneity to gather empirical evidence on the effects on European banks of more or less stringency and more or less risk sensitivity in capital requirements. Following the approach in Barth et al. (2004, 2006, 2008) we build index numbers for groups of national discretions and applying Altunbas et al. (2007) approach, we provide evidence on their effect on banks' risk, capital, efficiency and cost. We show that more stringency and more risk sensitivity in regulation not always result in a trade off between efficiency and solvency: the impact depends on the area of national discretion on which such characteristics apply. |
| Keywords: | Prudential regulation, capital requirements, bank capital, risk, efficiency |
| JEL: | E61 G21 G28 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1029&r=reg |
| By: | Trillas, Francesc (IESE Business School) |
| Abstract: | Regulatory independence has been proposed as a mechanism to alleviate the commitment problem associated with the sunk nature of investments in network industries. This paper summarizes the author's and others' work in this field (to take stock of several years of research) and, in addition, includes a new exercise that uses instrumental variables to endogenize both de jure and de facto regulatory independence. The institution of regulatory independence has costs as well as benefits; the positive, significant impact on industry performance is, however, most likely to be quantitatively modest. As a result of the empirical evidence and the assessment of the literature, a number of reform proposals are made to improve the institution's effectiveness. |
| Keywords: | regulation; independence; strategic delegation; |
| JEL: | L51 |
| Date: | 2010–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0860&r=reg |
| By: | Viral V. Acharya; Hamid Mehran; Anjan Thakor |
| Abstract: | This paper examines how much capital banks should optimally hold. Our model encompasses different kinds of moral hazard studied in banking: asset substitution (or risk shifting, e.g., making risky, negative net present value loans), managerial rent seeking (e.g., shirking or investing in inefficient “pet” projects that yield private benefits), and the free cash flow problem (manifesting as inefficient consumption of cash for perquisites by the manager). The privately optimal capital structure of the bank balances the benefit of leverage as reflected in the market discipline imposed by uninsured creditors on rent seeking on the one hand and the cost of leverage as reflected in the asset substitution induced at high levels of leverage on the other hand. Under some conditions, the capital structure resolves all the moral hazard problems we study, but under other conditions, the goal of having the market discipline of leverage clashes with the goal of having the benefit of equity capital in attenuating asset substitution moral hazard. In this case, private contracting must tolerate some form of inefficiency and bank value is not maximized as it is in the first best. Despite this, there is no economic rationale for regulation. However, when bank failures are correlated and en masse failures can impose significant social costs, regulators may intervene ex post via bank bailouts. Anticipation of this generates multiple Nash equilibria, one of which features systemic risk in that all banks choose inefficiently high leverage, take excessively correlated asset risk, and, because debt is paid off by regulators when banks fail en masse, market discipline is compromised. While a simple minimum (tier-1) capital requirement suffices to restore efficiency under some conditions, there are also conditions under which an optimal arrangement to contain the build-up of systemic risk takes the form of the regular (tier-1) capital requirement plus a “special capital account” that involves 1) building up capital via dividend payout restrictions, 2) investment of the retained earnings in designated assets, and 3) contingent distribution provisions. |
| Keywords: | Bank capital ; Bank reserves ; Financial leverage ; Systemic risk ; Bank failures |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:469&r=reg |
| By: | Spencer Banzhaf |
| Abstract: | Finding an appropriate way to incorporate environmental justice considerations into policy-making has been a procedural challenge since President Clinton issued Executive Order 12,898 over 15 years ago. Moreover, environmental justice continues to be overshadowed by efficiency considerations as embodied in benefit-cost analysis. This article argues that the environmental justice and benefit-cost policies and procedures in EPA's rule-making can both be improved by bringing them closer together, ultimately improving environmental regulations as well. In particular, environmental justice consideration should be incorporated into Regulatory Impact Analyses (RIAs) by drawing on the much older tradition of incorporating distributional effects into benefit-cost analysis. By providing information on the distribution of benefits and costs of its regulatory actions, EPA would further its environmental justice objectives by providing the information that all groups—including the poor, minorities, and environmental justice communities—need to understand the impacts of a regulatory action. By incorporating such information into its RIAs, EPA would integrate environmental justice considerations into its development of regulations. Finally, by actually allowing the new information to inform the design and selection of regulations so as to better protect disadvantaged groups, adding distributional impacts to RIAs would improve the distributive justice associated with EPA's actions as well as the procedural justice. |
| Keywords: | benefit-cost analysis, environmental justice, disperse pollutants |
| JEL: | Q56 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:nev:wpaper:wp201008&r=reg |
| By: | Sherzod N. Tashpulatov |
| Abstract: | Promoting competition among electricity producers is crucial for ensuring allocative efficiency and lower electricity prices. In this paper, I empirically examine the electricity market of England and Wales in order to analyze to what extent the regulatory reforms were successful in promoting competition among electricity producers during 1995-2000. This research provides further evidence of the effects of the reforms undertaken by the regulatory authority during the liberalization process and could be also of interest to countries that created their wholesale electricity markets similar to the original model of the England and Wales wholesale electricity market. |
| Keywords: | liberalization; electricity markets; uniform price auction; market power |
| JEL: | D21 D44 L90 L94 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp415&r=reg |
| By: | Partha Sen |
| Abstract: | This paper reviews (critically and selectively) the literature on the link between economic development, the environment and international trade (and capital flows). In particular, how stricter environmental regulation in the North affects trade and capital movements between the North and the South. It also discusses how trade and capital flows in turn, affect environmental policy. [Working Paper No. 172] |
| Keywords: | literature, economic development, international trade, capital movements, environmental policy |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2860&r=reg |
| By: | G. Menzies; R. Bird; P. Dixon; M. Rimmer |
| Abstract: | The Global Financial Crisis (GFC) has rekindled debate about the desirability of governmental interference in asset markets - either through the operation of policy levers, or, through the chosen institutional setup. In this paper we quantify economic costs due to mispricing of real assets in the USAGE model of the United States. The microeconomic costs of misallocated capital are second order small. The model suggests that regulators (or central banks) who risk mispricing by influencing asset prices do so without incurring large economic costs. |
| Keywords: | Capital Misallocation, Financial crises, CGE modeling, real assets |
| JEL: | C50 F41 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:cop:wpaper:g-205&r=reg |
| By: | Kley, Fabian; Wietschel, Martin; Dallinger, David |
| Abstract: | Electric vehicles can reduce carbon dioxide emissions, increase energy efficiency, and help to reduce the dependency on oil imports. However, today's technical and economic challenges are preventing mass-market adoption. In order to create an early market and support economies of scale in production, some European countries have already established support schemes. This research study aims to provide an overview of the existing support schemes in Europe and to assess them using four criteria: effectiveness, efficiency, practicability, and political acceptance. The study concludes with an impact analysis of today's economic support schemes which considers the total costs of ownership. While one-time support schemes help to reduce the large initial investments for EVs, recurring instruments are often more effective and efficient but also smaller in volume. The comparison of the different regional incentive schemes reveals that EVs today are only economically attractive in Denmark and Norway, but at relatively high prices. Thus, regulators need to increase the volume and efficiency of the support schemes, establish high scoring instruments, and align these on a European scale. In addition, non-monetary support, e.g. free-parking, can help to overcome technical or smaller economic hurdles. -- |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fisisi:s72010&r=reg |