nep-reg New Economics Papers
on Regulation
Issue of 2010‒10‒30
seventeen papers chosen by
Oleg Eismont
Russian Academy of Sciences

  1. Land Use Regulation as a Barrier to Entry: Evidence from the Texas Lodging Industry By Junichi Suzuki
  2. Financial Sector Regulation and Reforms in Emerging Markets: An Overview By Prasad, Eswar
  3. Towards an Emissions Trading Scheme for Air Pollutants in India By Esther Duflo; Michael Greenstone; Rohini Pande; Nicholas Ryan
  4. The Porter Hypothesis and Hyperbolic Discounting By Prabal Roy Chowdhury
  5. Mitigating the pro-cyclicality of Basel II By Rafael Repullo; Jesús Saurina; Carlos Trucharte
  6. Public Procurement in EU Member States - The Regulation of Contract Below the EU Thresholds and in Areas not Covered by the Detailed Rules of the EU Directives By OECD
  7. Macro Financial Determinants of the Great Financial Crisis: Implications for Financial Regulation By Caprio, Gerard Jr.; D'Apice , Vincenzo; Ferri, Giovanni; Puopolo , Giovanni Walter
  8. Subsidizing Renewable Energy under Capital Mobility By Marco Runkel; Thomas Eichner
  9. Product Market Regulation: Extending the Analysis Beyond OECD Countries By Anita Wölfl; Isabelle Wanner; Oliver Röhn; Giuseppe Nicoletti
  10. The Global Effects of Subglobal Climate Policies By Böhringer, Christoph; Fischer, Carolyn; Rosendahl, Knut Einar
  11. Short-Selling Bans around the World: Evidence from the 2007-09 Crisis By Alessandro Beber; Marco Pagano
  12. Optimal Leniency Programs in Antitrust By Andrea Pinna
  13. "The Global Financial Crisis and a New Capitalism?" By Luiz Carlos Bresser-Pereira
  14. What Are the Costs of Meeting Distributional Objectives for Climate Policy? By Ian W.H. Parry; Roberton C. Williams III
  15. Environmental and Trade Policies for Oligopolistic Industry in the Presence of Consumption Externalities By Jota Ishikawa; Toshihiro Okubo
  16. Carbon Prices and Automobile Greenhouse Gas Emissions: The Extensive and Intensive Margins By Christopher R. Knittel; Ryan Sandler
  17. Local and Global Externalities, Environmental Policies and Growth By Karen Pittel; Dirk Rübbelke

  1. By: Junichi Suzuki
    Abstract: This paper examines the anticompetitive effects of land use regulation using microdata on mid-scale chain hotels in Texas. I construct a dynamic entry-exit model that endogenizes hotel chains\' reactions to land use regulation. Estimation results indicate that imposing stringent regulation increases costs considerably. Hotel chains nonetheless enter highly regulated markets even if entry probabilities are lower, anticipating fewer rivals and hence greater market power. Consumers incur the costs of regulation indirectly in the form of high prices.
    Keywords: Land use regulation; firms\' entry; lodging industry;
    JEL: R3 L1 L5
    Date: 2010–10–21
  2. By: Prasad, Eswar (Cornell University)
    Abstract: This paper provides an overview of the complex conceptual and practical challenges that emerging market economies face as they attempt to reform their frameworks for financial regulation. These economies are striving to balance the quest for financial stability with the imperatives of financial development and broader financial inclusion. I argue that these objectives can in fact reinforce one another. I also discuss aspects of macroeconomic policies and cross-border regulation that have implications for financial stability and the resilience of the financial sector in emerging markets.
    Keywords: emerging markets, financial development, financial regulation, financial inclusion
    JEL: G1 G2 E58 F36
    Date: 2010–10
  3. By: Esther Duflo; Michael Greenstone; Rohini Pande; Nicholas Ryan
    Abstract: Emissions trading schemes have great potential to lower pollution while minimizing compliance costs for firms in many areas now subject to traditional command-and-control regulation. This paper connects experience with emissions trading, from programs like the U.S. Acid Rain program, to lessons for implementation of a Trading Pilot Scheme in India. This experience suggests that four areas are especially important for successful implementation of an emissions trading scheme: setting the cap, allocating permits, monitoring and compliance. The introduction of emissions trading would position India as a clear leader in environmental regulation amongst emerging economies.
    Date: 2010–08
  4. By: Prabal Roy Chowdhury
    Abstract: We examine pollution-reducing R&D by a monopoly firm producing a dirty product. In a dynamic framework with hyperbolic discounting, we establish conditions under which the Porter hypothesis goes through, i.e. environmental regulation increases R&D, thus reducing pollution, as well as increasing firm profits. This is likely to hold whenever R&D costs are at an intermediate level, and the planning horizon of the firms is large.
    Keywords: Porter hypothesis, abatement tax, R&D, hyperbolic discounting.
    JEL: H2 L1 L2 L5
    Date: 2010–10–22
  5. By: Rafael Repullo (CEMFI); Jesús Saurina (Banco de España); Carlos Trucharte (Banco de España)
    Abstract: Policy discussions on the recent financial crisis feature widespread calls to address the pro-cyclical effects of regulation. The main concern is that the new risk-sensitive bank capital regulation (Basel II) may amplify business cycle fluctuations. This paper compares the leading alternative procedures that have been proposed to mitigate this problem. We estimate a model of the probabilities of default (PDs) of Spanish firms during the period 1987 2008, and use the estimated PDs to compute the corresponding series of Basel II capital requirements per unit of loans. These requirements move significantly along the business cycle, ranging from 7.6% (in 2006) to 11.9% (in 1993). The comparison of the different procedures is based on the criterion of minimizing the root mean square deviations of each adjusted series with respect to the Hodrick-Prescott trend of the original series. The results show that the best procedures are either to smooth the input of the Basel II formula by using through the cycle PDs or to smooth the output with a multiplier based on GDP growth. Our discussion concludes that the latter is better in terms of simplicity, transparency, and consistency with banks’ risk pricing and risk management systems. For the portfolio of Spanish commercial and industrial loans and a 45% loss given default (LGD), the multiplier would amount to a 6.5% surcharge for each standard deviation in GDP growth. The surcharge would be significantly higher with cyclically-varying LGDs.
    Keywords: Bank capital regulation, Basel II, Pro-cyclicality, Business cycles, Credit crunch
    JEL: E32 G28
    Date: 2010–09
  6. By: OECD
    Abstract: How do Member States regulate their national public procurement systems below the EU thresholds and in areas not regulated in detail by the EU Directives? This paper provides the reader with an overview of different national policies, rules and procedures and presents common features and patterns in the regulatory approach of the countries covered. It will help Sigma partner countries design efficient and sound legal frameworks also outside the scope of the EU Directives. It may as well be of interest to the Member States themselves and to the international procurement community at large.
    Date: 2010–05–27
  7. By: Caprio, Gerard Jr.; D'Apice , Vincenzo; Ferri, Giovanni; Puopolo , Giovanni Walter
    Abstract: By analysing the macro financial determinants of the Great Financial Crisis of 2007-2009 on 83 countries, we find that the probability of suffering the crisis in 2008 was larger for countries having higher levels of credit deposit ratio whereas it was lower for countries having higher levels of: i) net interest margin, ii) concentration in the banking sector, iii) restrictions to bank activities, iv) private monitoring. Our findings contribute to the ongoing discussion that can help policymakers calibrate new regulation, by achieving a reasonable trade-off between financial stability and economic growth.
    Keywords: Banking Crisis; Government Intervention; Regulation
    JEL: G18 G15 G21
    Date: 2010–10–21
  8. By: Marco Runkel (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Thomas Eichner (Department of Economics, University of Hagen)
    Abstract: This paper provides a rationale for subsidizing green (renewable) energy production. Within a multi-country model where energy is produced with mobile capital in green and dirty production, we investigate the countries' decentralized choice of emissions taxes and green energy subsidies. Without green subsidies, the emissions tax is set inefficiently low, since each country ignores the environmental externality in icted on other countries and since the emissions tax leads to a capital out ow to other countries. When the green subsidy is available, countries choose a positive subsidy rate since this reduces the overall distortion of the tax-subsidy system. In doing so, each country internalizes a larger part of the environmental externality. As consequence capital is relocated from the dirty into the clean sectors and reduces global pollution. Hence, the subsidy is not only bene cial for the country which imposes it but for all countries.
    Keywords: renewable energy, capital mobility, green subsidy, emissions regulation
    JEL: H71 Q42 Q58
    Date: 2010–09
  9. By: Anita Wölfl; Isabelle Wanner; Oliver Röhn; Giuseppe Nicoletti
    Abstract: In this paper the recently updated product market regulation (PMR) indicators are extended to a larger set of countries including several non-OECD members. It investigates regulatory patterns in this extended set of countries as compared to the OECD countries and analyses the link between regulation and growth. On average, regulation is more restrictive of competition in non-member countries than in the OECD area. However, there exists considerable heterogeneity within this country grouping as concerns the level of the regulatory stance and its composition as well as the potential past evolution of regulatory processes. Furthermore, growth regressions provide evidence that less restrictive product market regulation is conducive to growth. An improvement of ½ index points of barriers to entrepreneurship would translate into approximately a 0.4% higher average annual rate of GDP per capita growth. However, the results also suggest that for countries that are less advanced, the potential growth benefits of enhancing product market competition may be impaired by other structural weaknesses. In particular, some restrictions of foreign trade and investment might be beneficial for growth in early stages of development.<P>La réglementation des marchés de produits : étendre l'analyse au-delà des pays de l'OCDE<BR>Dans cet article, les indicateurs de réglementation des marchés de produits, qui ont été récemment mis à jour, sont étendus à de nombreux pays, dont plusieurs pays non-membres. Cet article examine la réglementation dans cet ensemble de pays et analyse le lien entre la réglementation et la croissance. En moyenne, la réglementation est plus restrictive pour la concurrence dans les pays non-membres vis-à-vis de la zone OCDE. Toutefois, il existe une hétérogénéité considérable au sein de ce groupe de pays en ce qui concerne le niveau de réglementation et sa composition ainsi que l'évolution potentielle des processus de réglementation dans le passé. En outre, des estimations économétriques mettent en évidence qu'une réduction des obstacles à la concurrence est favorable à la croissance. Une amélioration d'un ½ point des obstacles à l'entrepreneuriat se traduirait par un taux annuel moyen de croissance du PIB par habitant qui serait d'environ 0,4% plus élevé. Cependant, les résultats suggèrent également que pour les pays moins avancés dans leur développement économique, les avantages potentiels de croissance résultant d'un renforcement de la concurrence sur les marchés de produits peuvent être altérés par d'autres faiblesses structurelles. En particulier, certaines restrictions au commerce international et à l'investissement étranger pourraient être favorables pour la croissance dans les premiers stades de développement.
    Keywords: product market regulation, growth regressions, réglementation du marché des produits, estimations économétriques
    JEL: K20 L51 O11 O43
    Date: 2010–10–06
  10. By: Böhringer, Christoph; Fischer, Carolyn (Resources for the Future); Rosendahl, Knut Einar
    Abstract: Individual countries are in the process of legislating responses to the challenges posed by climate change. The prospect of rising carbon prices raises concerns in these nations about the effects on the competitiveness of their own energy-intensive industries and the potential for carbon leakage, particularly leakage to emerging economies that lack comparable regulation. In response, certain developed countries are proposing controversial trade-related measures and allowance allocation designs to complement their climate policies. Missing from much of the debate on trade-related measures is a broader understanding of how climate policies implemented unilaterally (or subglobally) affect all countries in the global trading system. Arguably, the largest impacts are from the targeted carbon pricing itself, which generates macroeconomic effects, terms-of-trade changes, and shifts in global energy demand and prices; it also changes the relative prices of certain energy-intensive goods. This paper studies how climate policies implemented in certain major economies (the European Union and the United States) affect the global distribution of economic and environmental outcomes, and how these outcomes may be altered by complementary policies aimed at addressing carbon leakage.
    Keywords: cap-and-trade, emissions leakage, border carbon adjustments, output-based allocation, general equilibrium model
    JEL: Q2 Q43 H2 D61
    Date: 2010–10–18
  11. By: Alessandro Beber (University of Amsterdam); Marco Pagano (Universita di Napoli Federico II, CSEF, EIEF and CEPR)
    Abstract: Most stock exchange regulators around the world reacted to the 2007-2009 crisis by imposing bans or regulatory constraints on short-selling. Short-selling restrictions were imposed and lifted at different dates in different countries, often applied to different sets of stocks and featured different degrees of stringency. We exploit this considerable variation in short-sales regimes to identify their effects with panel data techniques, and find that bans (i) were detrimental for liquidity, especially for stocks with small market capitalization, high volatility and no listed options; (ii) slowed down price discovery, especially in bear market phases, and (iii) failed to support stock prices, except possibly for U.S. financial stocks.
    Keywords: short selling; ban; crisis; liquidity; price discovery
    JEL: G12 G14 G18
    Date: 2010–10–19
  12. By: Andrea Pinna
    Abstract: This paper analyses the incentive structure underlying the adoption of leniency programs in antitrust enforcement. The enforcement of competition law is treated as the delegation of the economic activity from the government to private firms. The model contributes to the debate over desirability of granting leniency to more than one cartelists. For this purpose, I introduce a probability of conviction that depends on authority-specific characteristics. This results in the optimal number of leniencies being specific to national authorities and market structures. The model confirms a result widely acknowledged in the antitrust literature - a program that merely reduces sanctions to the first reporter is ineffective.
    Keywords: Antitrust; Leniency; Deterrence
    JEL: K21 L13 L14
    Date: 2010
  13. By: Luiz Carlos Bresser-Pereira
    Abstract: The 2008 global financial crisis was the consequence of the process (1) of financialization, or the creation of massive fictitious financial wealth, that began in the 1980s; and (2) the hegemony of a reactionary ideology-namely, neoliberalism-based on self-regulated and efficient markets. Although laissez-faire capitalism is intrinsically unstable, the lessons of the 1929 stock market crash of 1929 and the Great Depression of the 1930s were transformed into theories and institutions or regulations that led to the "30 glorious years of capitalism" (1948–77) and that could have helped avoid a financial crisis as profound as the present one. But it did not, because a coalition of rentiers and "financists" achieved hegemony and, while deregulating the existing financial operations, refused to regulate the financial innovations that made these markets even riskier. Neoclassical economics played the role of a meta-ideology as it legitimized, mathematically and "scientifically," neoliberal ideology and deregulation. From this crisis a new democratic capitalist system will emerge, though its character is difficult to predict. It will not be financialized, but the glory years' tendencies toward a global and knowledge-based capitalism in which professionals have more say than rentier capitalists, as well as the tendency to improve democracy by making it more social and participative, will be resumed.
    Keywords: Financial Crisis; Neoliberalism; Deregulation; Financialization; Political Coalition
    JEL: E30 P1
    Date: 2010–05
  14. By: Ian W.H. Parry; Roberton C. Williams III
    Abstract: This paper develops an analytical model to quantify the costs and distributional effects of various fiscal options for allocating the (large) rents created under prospective cap-and-trade programs to reduce domestic, energy-related CO2 emissions. The trade-off between cost effectiveness and distribution is striking. The welfare costs of different policies, accounting for linkages with the broader fiscal system, range from negative $6 billion/year to $53 billion/year in 2020, or between minus $12 to almost $100 per ton of CO2 reductions! The least costly policy involves auctioning all allowances with revenues used to cut proportional income taxes, while the most costly policies involve recycling revenues in lump-sum dividends or grandfathering emissions allowances. The least costly policy is regressive, however, while the dividend policy is progressive, and grandfathering permits is both costly and regressive. A distribution-neutral policy entails costs of $18 to $42 per ton of CO2 reductions.
    JEL: H22 H23 Q48 Q54 Q58
    Date: 2010–10
  15. By: Jota Ishikawa (Hitotsubashi University, and RIETI); Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: We explore the effects of environmental and trade policies with negative consumption externalities when a domestic firm and a foreign rival produce imperfect substitutes and compete in the domestic market. Consumption of the foreign product generates more emissions than that of the domestic product. Emission taxes reduce emissions, harm the foreign firm, but may benefit the domestic firm. Tariffs could mitigate externalities more "effectively" than emission taxes. Consumption subsidies provided to the domestic product may raise emissions and worsen domestic welfare. Stringent environmental policies may induce the foreign firm to produce an environmentally friendly good, though environmental damages may increase.
    Keywords: environmental policies, trade policies, consumption externalities, international oligopoly, differentiated products
    JEL: F13 F18
    Date: 2010–10
  16. By: Christopher R. Knittel; Ryan Sandler
    Abstract: The transportation sector accounts for nearly one third of the United States' greenhouse gas emissions. While over the past number of decades, policy makers have avoided directly pricing the externalities from vehicles, both in terms of global and more local pollutants and Corporate Average Fuel Standards have changed little since the mid-1980s, there is now considerable interest in reducing greenhouse gas emissions form the transportation sector. Many have argued that the unique features of the sector imply that pricing mechanisms would have little affect on emissions. This paper analyzes how pricing carbon through either a cap and trade system or carbon tax might affect greenhouse gas emissions from the transportation sector by estimating how changes in gasoline prices alter consumer behavior. We analyze their effect on both the intensive (e.g., vehicle miles travelled) and extensive (e.g., vehicle scrapping) margins. We find large effects on both margins.
    JEL: L0 Q5
    Date: 2010–10
  17. By: Karen Pittel; Dirk Rübbelke
    Abstract: The paper analyzes the implications of local and global pollution when two types of abatement activities can be undertaken. One type reduces solely local pollution (e.g., use of particulate matter filters) while the other mitigates global pollution as well (e.g., application of fuel saving technologies). In the framework of a 2-country endogenous growth model, the implications of different assumptions about the degree to which global externalities are internalized are analyzed. Subsequently, we derive policy rules adapted to the different scenarios. Special attention is paid to pollution, growth and optimal policy in the case of asymmetric internalization.<br />
    Keywords: economic growth, global and local externalities, government policies
    Date: 2010–10

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