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on Regulation |
| By: | Fernando T. Camacho; Flavio M. Menezes (School of Economics, The University of Queensland) |
| Abstract: | This paper investigates how price regulation under moral hazard can affect a regulated firm’s cost of capital. We consider stylised versions of the two most typical regulatory frameworks that have been applied over the last decades by regulators: Price Cap and Cost of Service. We show that there is a trade-off between lower operational costs and a higher cost of capital under Price Cap regulation and higher operational costs and lower cost of capital under Cost of Service regulation. As a result, when the extent of moral hazard is not significant, Price Cap regulation generates lower welfare than the Cost of Service regulation. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:413&r=reg |
| By: | FRANCISCO MARCOS (Instituto de Empresa); JUAN SANTALO (Instituto de Empresa) |
| Abstract: | This paper estimates the average effect of regulatory intensity and administrative redtape on productivity and innovation. For this purpose we exploit the exogenous variation of the decentralization process that has taken place in Spain during the last three decades. Using objective proxies for legislative and regulatory activity such as the number of pages and number of new norms published in the regional legislative reporters we find a strong negative impact of regulatory intensity on regional innovation and productivity. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:emp:wpaper:wp10-04&r=reg |
| By: | Michael G. Plummer |
| Abstract: | The ongoing global economic crisis has punished Asian economies severely, despite the fact that its origins derive from outside the region. The global economic crisis was transmitted through real and financial channels, underscoring how vulnerable the region is to external shocks. This paper explores the microeconomic origins of the financial crisis and endeavors to ascertain how crises might be mitigated in the future through better regulation, supervision, and institution-building. Moreover, it makes the case for closer economic cooperation in order to internalize key externalities associated with modern global finance. This cooperation, in turn, should take place at the appropriate level, with incentives for cooperation at the global, regional, and subregional levels. It explores the potential for the creation of an Asian Financial Stability Board and deepening other initiatives in Association of Southeast Asian Nations (ASEAN)+3 and ASEAN forums. However, it stresses that the most important financial reforms in Asia will need to take place at the national level. [ADBI Working Paper 201] |
| Keywords: | global economic crisis, financial channels, underscoring, microeconomic, regulation, supervision, |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:3008&r=reg |
| By: | OKUBO Toshihiro; Matthew A. COLE; Robert J.R. ELLIOTT |
| Abstract: | Recent years have witnessed a dramatic increase in the number of firms shifting stages of their production processes overseas. In this paper we investigate whether firms outsource the dirtier stages of production to minimise domestic environmental regulation costs - a process broadly consistent with the pollution haven hypothesis. We develop a theoretical model of environmental outsourcing that focuses on the roles played by firm size and productivity, transport costs and environmental regulations. We test the model's predictions using a firm-level data set for Japan. We find evidence of an 'environmental outsourcing' effect although this is mitigated by transport costs and other factors related to dirty good production. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:10055&r=reg |
| By: | Ojo, Marianne |
| Abstract: | Over the recent years, it has increasingly been acknowledged that macro prudential policies are not only considered to be “a missing ingredient from the current policy framework”, but that there has also been “too huge a gap between macro economic policy and the regulation of individual financial institutions.” The link between monetary policy and macro prudential policies, the knowledge of central banks in matters relating to information on market conditions and their oversight of payment systems, as well as the need to bridge the existing gap between supervisory authorities and central banks whilst executing their supervisory roles and functions, have necessitated an extension of central banks role in the management of liquidity risks and macro prudential supervision. A fundamental aim of this paper is to address how an extension of central banks’ roles in macro prudential supervision can assist regulators and supervisors in bridging the afore mentioned gap between macro economic policy and the regulation of individual financial institutions. In so doing, the need for greater focus on macro prudential factors, namely, the system as a whole, as opposed to mere focus on the supervision of individual institutions will be highlighted. The expertise and knowledge with which a central bank is endowed in its role as overseer of the entire payments system – as well as the quality of information which it has access to, are some of those factors which add weight to its ability to bridge “the gap”. |
| Keywords: | macroprudential; Financial Crisis; central banks; Basel III; systemic risk; supervision; liquidity; information; Banking Reform Act; Financial Services Act; regulators |
| JEL: | K2 E58 G21 E3 |
| Date: | 2010–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:25884&r=reg |
| By: | Mariko Fujii |
| Abstract: | It is widely believed that the practice of securitization is one of the causes that led to the 2007–08 financial crisis. In this paper, I show that securitized products such as collateralized debt obligations (CDO) are particularly vulnerable to systematic risk and tend to show higher tail risk. These characteristics, in turn, are closely associated with joint failures and systemic risk. In order to achieve greater stability of the financial system, it is important to prevent the recurrence of the collapse of specific markets as this may lead to the collapse of other components of the financial system. From this perspective, the financial regulations that should be applied to these problematic financial products and their relation to possible systemic risks are discussed. [ADBI Working Paper 203] |
| Keywords: | securitization, financial crisis, collateralized, obligations, stability, products |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:3007&r=reg |
| By: | Zsolt Darvas (Institute of Economics - Hungarian Academy of Science, Bruegel-Brusselss); Jakob von Weizs„cker (Bruegel-Brusselss) |
| Abstract: | The case for taxing financial transactions merely to raise more revenues from the financial sector is not particularly strong. Better alternatives to tax the financial sector are likely to be available. However, a tax on financial transactions could be justified in order to limit socially undesirable transactions when more direct means of doing so are unavailable for political or practical reasons. Some financial transactions are indeed likely to do more harm than good, especially when they contribute to the systemic risk of the financial system. However, such a financial transaction tax should be very small, much smaller than the negative externalities in question, because it is a blunt instrument that also drives out socially useful transactions. There is a case for taxing over-the-counter derivative transactions at a somewhat higher rate than exchange-based derivative transactions. More targeted remedies to drive out socially undesirable transactions should be sought in parallel, which would allow, after their implementation, to reduce or even phase out financial transaction taxes. |
| Keywords: | transaction tax, Tobin tax, financial transactions, global financial crisis, financial regulation |
| JEL: | H20 D62 G10 F30 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1019&r=reg |
| By: | Broberg, Thomas (National Institute of Economic Research); Marklund, Per-Olov (Centre for Regional Science); Samakovlis, Eva (National Institute of Economic Research); Hammar, Henrik (Centre for Regional Science) |
| Abstract: | <p>Swedish environmental policy often emphasizes the importance of “taking the lead”. For example, Sweden has chosen a more ambitious climate policy target than required by the European Union (EU), namely a reduction of Swedish emissions of greenhouse gases by 40 percent by 2020 compared to the 1990 level. Government Bill 2008/09:162 emphasizes Sweden’s role as a good example in making an effort to re-duce climate change by showing that an offensive climate policy can indeed be com-bined with high economic growth. This view of environmental policy is, however, the subject of constant debate. <p>A common argument is that environmental requirements induce private costs by forc-ing firms to make investments that crowd out other more productive investments, which hampers productivity growth and therefore competitiveness. Professor Mi-chael E. Porter of Harvard questioned this argument, and his view has become known as the Porter hypothesis (Porter, 1991). This hypothesis implies that levying stringent environmental regulations on firms enhances their productivity compared to competi-tors not subject to, or subject to lax, environmental regulations. A central message is that the connection between environmental regulation and competitiveness should be scrutinized within a dynamic framework (Porter and van der Linde, 1995). <p>The main objective of this paper is to test the Porter hypothesis by assessing static and dynamic effects of environmental policy on productivity within the Swedish manufac-turing industry, specifically on the component total efficiency. The paper adds mainly to previous literature by using unique data on environmental protection investments, divided into investments in pollution control and pollution prevention, as a proxy for envi-ronmental regulation. The distinction between these types of investments is crucial to the understanding of the outcomes anticipated by the Porter hypothesis. <p>The international literature studying the Porter hypothesis is extensive. A comprehen-sive review reveals that neither theoretical nor empirical literature gives general sup-port for the hypothesis (Brännlund and Lundgren, 2009). We argue that, to some ex-tent, the Porter hypothesis has not yet been given a fair chance in the empirical litera-ture, as dynamic effects are often neglected in empirical tests. Two exceptions are Managi et al. (2005) and Lanoie et al. (2008), who first estimate Total Factor Produc-tivity (TFP) scores that then are used as dependent variables in regression analyses where explanatory lagged environmental stringency measures model dynamic effects. A disadvantage with these studies is, however, that environmental stringency is ap-proximated by the cost of complying with environmental command- and-control regulations, such regulations are not emphasized by the Porter hypothesis. <p>The empirical test of the Porter hypothesis is performed as a two-step procedure, where total efficiency scores are first estimated by adopting a stochastic production frontier function approach. In the second step, the efficiency scores are used as the dependent variable in random effects regression analyses, where the independent vari-ables are, e.g., investment in pollution control and pollution prevention. In order to assess whether these investments have dynamic effects on total efficiency these vari-ables are also lagged. If positive effects are established we cannot reject the claim that environmental leadership will benefit the Swedish industry. The estimations are based on firm level data from five Swedish industries for the period 1999-2004, and carried out for the pooled data as well as for the industries separately. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nierwp:0119&r=reg |
| By: | Itziar Lazkano; Linda Nøstbakken |
| Date: | 2010–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2010-22&r=reg |
| By: | Anderson, Soren; Parry, Ian (Resources for the Future); Sallee, James M.; Fischer, Carolyn (Resources for the Future) |
| Abstract: | This paper discusses fuel economy regulations in the United States and other countries. We first describe how these programs affect fuel use and other dimensions of the vehicle fleet. We then review different methodologies for assessing the costs of fuel economy regulations and discuss the policy implications of the results. We also compare the welfare effects of fuel economy standards with those of fuel taxes and assess whether these two policies complement each other. Finally, we review arguments in favor of a “feebate” system, which imposes fees on inefficient vehicles and provides rebates for efficient vehicles. |
| Keywords: | fuel economy regulations, costs, welfare effects, climate change, feebates |
| JEL: | Q48 Q58 H21 R48 |
| Date: | 2010–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-10-45&r=reg |
| By: | Sergio Nicoletti-Altimari (Banca d'Italia); Carmelo Salleo (Banca d'Italia) |
| Abstract: | After the crisis, bank regulators are considering mitigating liquidity risk by introducing quantity limits on liquidity and maturity mismatch. We argue that aggregate liquidity risk can be reduced with little deadweight loss by encouraging banks, through adequate regulatory relief, to satisfy part of their financing needs with a new class of securities. These would include a Roll-Over Option Facility (ROOF) that allows the issuer, for a price, to keep the funds if at maturity a readily observable variable correlated with systemic liquidity risk (e.g. the LIBOR-OIS spread) is above a trigger threshold. At roll-over the yield would reflect the current price of liquidity and credit risk, making ROOFs attractive to investors. The instrument could attenuate a liquidity crisis by reducing banks’ need to roll debt over or sell off assets, and diminish the probability of runs, if markets are convinced that banks can secure sufficient liquidity when needed thanks to the widespread use of this contingent claim. |
| Keywords: | funding, liquidity, contingent claim, financial crisis |
| JEL: | G18 G21 G28 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_70_10&r=reg |
| By: | Jeanne, O. Prof.Dr.; Korinek, A. (Tilburg University, Center for Economic Research) |
| Abstract: | We study a dynamic model in which the interaction between debt ac- cumulation and asset prices magni…es credit booms and busts. We find that borrowers do not internalize these feedback e¤ects and therefore suf- fer from excessively large booms and busts in both credit flows and asset prices. We show that a Pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare. We calibrate the model by reference to (i) the US small and medium-sized enterprise sector and (ii) the household sector, and …nd the optimal tax to be countercycli- cal in both cases, dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms. |
| Keywords: | boom-bust cycles;…nancial crises;systemic externalities;macro-prudential regulation;precautionary savings |
| JEL: | E44 G38 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2010108s&r=reg |
| By: | Richard Watt (University of Canterbury) |
| Abstract: | Essential inputs are an important topic of debate for economics. One common essential input is intellectual property, in the form of either patents or copyrights, which the producers of goods and services for final consumption must necessarily purchase from the input supplier. The ensuing monopoly power of the input supplier leads in many cases to controversial outcomes, in which social inefficiencies can occur. In much of the literature on the economics of intellectual property, it is assumed that the right holder is remunerated either by a fixed payment or by a payment that amounts to an additional marginal cost to the user, or both. However, in some significant instances in the real-world, right holders are constrained to use (or may choose to use) a compensation scheme that involves revenue sharing. That is, the right holder takes as remuneration a part of the user’s revenue. In essence, the remuneration is set as a tax on the user’s revenue. This paper analyses such remuneration mechanisms, establishing and analysing the optimal tax rate, and also the Nash equilibrium tax rate that would emerge from a fair and unconstrained bargaining problem. The second option provids a rate that may be useful for regulatory authorities. |
| Date: | 2010–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:10/62&r=reg |
| By: | Larry D. Wall |
| Abstract: | The recent global financial crisis reflects numerous breakdowns in the prudential discipline of financial firms. This paper discusses ways to strengthen micro- and macroprudential supervision and restore credible market discipline. The discussion notes that microprudential supervisors are typically assigned a variety of goals that sometimes have conflicting policy implications. In such a setting, the structure of the regulatory agencies and the priority given to prudential goals are critical to achieving those goals. [ADBI Working Paper 176] |
| Keywords: | global financial crisis, prudential, discipline,financial firms, policy,achieving,goals |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:3040&r=reg |
| By: | G.M. Peter Swann |
| Abstract: | While there is a large literature on the economic theory of international standards, and their presumed effects, we know much less about how international standards work in practice. This paper reviews the body of empirical work that has investigated the specific question: How international standards impact on international trade? Do they help or hinder trade? The work reviewed ranges from econometric studies using a variety of measures of standards derived from e.g. the Perinorm database, diffusion of ISO9000, regional agreements, mutual recognition agreements and harmonisation, to surveys of exporting firms. A mapping of the findings from econometric models shows that there is often, but not always, a positive relationship between international standards and exports or imports, which is in line with the widely held view that international standards are supportive of trade. For national (i.e. country-specific) standards studies find positive as well as negative effects on trade and thus provide only qualified support for the commonly held view that national standards create barriers to trade. Overall, the literature reviewed does not provide a single answer to the question of trade effects, and the explanation for this appears to have to do with how the multiple economic effects of standards interact. The paper summarises some of the existing empirical evidence for some of these effects, which include network externalities, variety, knowledge, quality and trust, and which merit further research in order to understand when standards help trade, and when not. |
| Keywords: | international trade, exports, imports, trade barriers, standards, mutual recognition agreement, ISO, technical regulations, harmonisation, mutual recognition, international standards, harmonisation agreement, International Organisation for Standardisation, econometric model, empirical, trade effect, International Electrotechnical Commission, IEC, International Telecommunication Union, ITU, TBT Agreement, WTO SPS Agreement, Perinorm, MRAs |
| Date: | 2010–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:oec:traaab:97-en&r=reg |