nep-reg New Economics Papers
on Regulation
Issue of 2010‒11‒06
nineteen papers chosen by
Oleg Eismont
Russian Academy of Sciences

  1. Negotiating a Voluntary Agreement When Firms Self-Regulate By Pierre Fleckinger; Matthieu Glachant
  2. Regulatory Policy Design for Agroecosystem Management on Public Rangelands By Tigran Melkonyan; Michael Taylor
  3. Indirect Land Use Change: A second best solution to a first class problem By Zilberman, David D.; Hochman, Gal; Rajagopal, Deepak
  4. Revisiting the Global Food Architecture: Lessons from the 2008 Food Crisis By Luc Christiaensen
  5. Emergence of Rating Agencies: Implications for Establishing a Regional Rating Agency in Asia By Ying Yi Tsai; Li-Gang Liu
  6. The carbon-budget approach to climate stabilization: Cost-effective subglobal versus global action By Thomas Eichner; Rüdiger Pethig
  7. Imperfect Platform Competition: A General Framework By Alexander White; E. Glen Weyl
  8. The Problem of the Commons: Still Unsettled after 100 Years By Robert N. Stavins
  9. Ownership: Evolution and regulation.. By Franks, Julian; Mayer, Colin P.; Rossi, Stefano
  10. "Optimal taxes and penalties when the government cannot commit to its audit policy" By Leandro Arozamena; Martin Besfamille; Pablo Sanguinetti
  11. Optimal Patentability Requirements with Fragmented Property Rights By Vincenzo Denicolò; Christine Halmenschlager
  12. Antitrust in two-sided markets: Is competition always desirable? By Fiedler, Ingo C
  13. Rights Based Management and the Reform of the Common Fisheries Policy: An Evaluation of the Portuguese Experience By Manuel Pacheco Coelho
  14. The Influence of the Self-Regulatory Focus on the Effectiveness of Stop-Smoking Campaigns for Young Smokers By L. ADAMS; T. FASEUR; M. GEUENS
  15. The New Face of Chinese Industrial Policy: Making Sense of Anti-Dumping Cases in the Petrochemical and Steel Industries By Regina M. Abrami; Yu Zheng
  16. Double Dipping in Environmental Markets By Woodward, Richard T
  17. Is There Really a Green Paradox? By Rick van der Ploeg; Cees Withagen
  18. Capital Requirement and Financial Frictions in Banking: Macroeconomic Implications By Ali Dib
  19. Economic Impacts of Policies Affecting Crop Biotechnology and Trade By Kym Anderson

  1. By: Pierre Fleckinger (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Matthieu Glachant (CERNA - Centre d'économie industrielle - Mines ParisTech)
    Abstract: Does self-regulation improve social welfare? We develop a policy game featuring a regulator and a firm that can unilaterally commit to better environmental or social behavior in order to preempt future public policy. We show that the answer depends on the set of policy instruments available to the regulator. Self-regulation improves welfare if the regulator can only use mandatory regulation: it reduces welfare when the regulator opts for a voluntary agreement. This suggests that self-regulation and voluntary agreements are not good complements from a welfare point of view. We derive the policy implications, and extend the basic model in several dimensions.
    Keywords: Self-Regulation; Negotiation; Regulation Preemption; Voluntary Agreement.
    Date: 2010
  2. By: Tigran Melkonyan (Department of Resource Economics, University of Nevada, Reno); Michael Taylor (Department of Resource Economics, University of Nevada, Reno)
    Abstract: This paper analyzes regulatory design for agroecosystem management on public rangelands. We present an informational and institutional environment where three of the most prominent regulatory instruments on public rangelands – input regulation, cost-sharing/taxation, and performance regulation – can be defined and compared. The paper examines how the optimal regulation is shaped by the informational and institutional constraints faced by federal land management agencies (FLMAs) such as the Bureau of Land Management and the U.S. Forest Service. These constraints include informational asymmetries between ranchers and FLMAs, limitations on FLMAs’ ability to monitor ranch-level ecological conditions, and constraints on FLMAs’ actions due to budget limitations and restrictions on the level of penalties they can assess. The theoretical model extends the previous work of Baker (1992), Prendergast (2002), and Hueth and Melkonyan (2009) by considering optimal regulation by a budget-constrained regulator in an environment of asymmetric information and moral hazard.
    Keywords: Agri-Environmental Policy, Asymmetric Information, Budget-Constrained Regulation
    JEL: D86 Q18 Q20
    Date: 2010–10
  3. By: Zilberman, David D.; Hochman, Gal; Rajagopal, Deepak
    Abstract: Concern about the possible affects of biofuels on deforestation have led to assigning biofuel producers with the responsibility for greenhouse gas (GHG) emissions of the indirect land use changes (ILUC) associated with their activities when assessing their compliance with biofuel policies. We show that the computation of the ILUC is shrouded with uncertainty; they vary frequently, and are strongly affected by policy choices. It seems that its overall impact on GHGs is relatively minor. Once the ILUCs are introduced other indirect effects of biofuel may need to be considered which will increase the cost of biofuel regulations. Concentrating on direct regulation of biofuel and on efforts to reduce deforestation, wherever it occurs, may be more effective than debating and refining the ILUC.
    Keywords: land use, biofuels, greenhouse gas emissions, regulations
    Date: 2010–10–01
  4. By: Luc Christiaensen
    Abstract: The 2008 episode of food price explosion, political turmoil, and human suffering revealed important flaws in the current global food architecture. This paper argues that to safeguard the strengths of the current system, four failures in market functioning and policymaking must be addressed. First, governments must reinvest in agriculture with a focus on public goods and subject to increased public accountability to re-ensure the global food supply. Second, the policy-induced link between food and fuel prices must be broken through a revision of EU and US agro-fuel policies. Third, better sharing of information on food stocks, stricter WTO regulation of export restrictions, and some form of globally managed buffer stock will be minimum requirements to prevent the resurgence of inefficient national food self-sufficiency policies. Fourth, a market-based food security system is only sustainable given well functioning national social safety nets. [Discussion Paper No. 2009/04]
    Keywords: agriculture, agro-fuels, food crisis, food security
    Date: 2010
  5. By: Ying Yi Tsai; Li-Gang Liu (Asian Development Bank Institute)
    Abstract: The present analysis sheds light on the setting up a regional rating agency in Asia in the wake of recent financial crisis. We investigate the policy facing a financial regulator while evaluating whether or not to admit new entrants into the credit rating market. In an incomplete contracting framework, we show that an impartial financial regulatory body (represented by a benevolent supranational organization) can facilitate credit ratings of high quality by allowing for the entry of new rating agencies on a non-single basis than it does for a mere single entry. This finding is caused by increased competition among the rating agencies, which induces higher quality of rating services even should rating agencies still exert below their maximum level of efforts.
    Keywords: rating agency, financial crisis, regulatory body, credit ratings
    JEL: D43 D82 G24 L15
    Date: 2010
  6. By: Thomas Eichner; Rüdiger Pethig
    Abstract: Scientific expertise suggests that mitigating extreme world-wide climate change damages requires avoiding increases in the world mean temperature exceeding 2 degrees Celsius. To achieve the two degree target, the cumulated global emissions must not exceed some limit, the so-called global carbon budget. In a two-period two country general equilibrium model with a finite stock of fossil fuels we compare the cooperative cost-effective policy with the unilateral cost-effective policy of restricting emissions to the global carbon budget. In its simplest form, the cost-effective global policy is shown to consist of a joint emission trading scheme in the first period (only). In sharp contrast, subglobal cost-effective regulation may require the abating country to tax its first-period consumption and to tax or subsidize its emissions in the first and/or second period.
    Keywords: carbon emissions, carbon budget, cooperative, unilateral, cost-effective regulation
    JEL: H21 H23 Q54 Q58
    Date: 2010
  7. By: Alexander White (Department of Economics, Harvard University); E. Glen Weyl (Harvard University Society of Fellows; Toulouse School of Economics)
    Abstract: We propose a general model of imperfect competition among multi-product firms, the consumption of whose goods yields externalities from one consumer to another. We extend the allocation approach of the Weyl (2010) monopoly model, proposing a solution concept, Insulated Equilibrium, that allows for tractable analysis of competition. In such an equilibrium each firm’s price on one side of the market adjusts to all firms’ participation levels on the other side, so as to insulate its own allocation. This eliminates both the indeterminacy of consumer reactions once platforms have set their tariffs and the multiplicity of reaction functions that platforms can have to one another’s tariffs. Our approach allows us to derive intuitive first-order conditions characterizing equilibrium without restrictive assumptions and to analyze the effects of competition, mergers and regulation.
    Keywords: Two-sided Markets, Multi-sided Platforms, Quality Competition, Oligopoly, Antitrust of Network Industries
    JEL: D21 D43 L13
    Date: 2010–09
  8. By: Robert N. Stavins (John F. Kennedy School of Government, Harvard University, Resources for the Future and National Bureau of Economic Research)
    Abstract: The problem of the commons is more important to our lives and thus more central to economics than a century ago when Katharine Coman led off the first issue of the American Economic Review. As the U.S. and other economies have grown, the carrying-capacity of the planet - in regard to natural resources and environmental quality — has become a greater concern, particularly for common-property and open-access resources. The focus of this article is on some important, unsettled problems of the commons. Within the realm of natural resources, there are special challenges associated with renewable resources, which are frequently characterized by open access. An important example is the degradation of open-access fisheries. Critical commons problems are also associated with environmental quality. A key contribution of economics has been the development of market-based approaches to environmental protection. These instruments are key to addressing the ultimate commons problem of the twenty-first century - global climate change.
    Keywords: Common-Property Resource, Open-Access Resource, Fisheries, Global Climate Change
    JEL: Q22 Q28 Q50 Q54 Q58
    Date: 2010–10
  9. By: Franks, Julian; Mayer, Colin P.; Rossi, Stefano
    Abstract: This article is the first study of long-run evolution of investor protection and corporate ownership in the United Kingdom over the twentieth century. Formal investor protection emerged only in the second half of the century. We assess the influence of investor protection on ownership by comparing cross-sections of firms at different times in the century and the evolution of firms incorporating at different stages of the century. Investor protection had little impact on dispersion of ownership: even in the absence of investor protection, rates of dispersion of ownership were high, associated primarily with mergers. Preliminary evidence suggests that ownership dispersion in the United Kingdom relied more on informal relations of trust than on formal investor protection.
    JEL: C32 C34
    Date: 2010
  10. By: Leandro Arozamena; Martin Besfamille; Pablo Sanguinetti
    Abstract: We examine the problem of a utilitarian government that sets taxes and fines for evaders but cannot commit to any enforcement policy. Given the tax law, the government and taxpayers —some of whom are honest— play a report-audit game that, depending on taxes, fines and audit costs, generates either full evasion and no audits, or partial evasion and random auditing. Anticipating both possibilities, we characterize the optimal tax law. We show that it may be optimal for the government not to fine evaders as a way to commit not to audit. Moreover, social welfare is nonmonotonic in the audit cost.
    Keywords: Tax rates, Tax evasion, Enforcement, Audit costs, No commitment, Mixed-strategy equilibrium.
    JEL: D82 H26
    Date: 2010–10
  11. By: Vincenzo Denicolò (Università di Bologna); Christine Halmenschlager (University Paris II)
    Abstract: We study the effect of the fragmentation of intellectual property rights on optimal patent design. The major finding is that when several complementary innovative components must be assembled to operate a new technology, the patentability requirements should be stronger than in the case of stand-alone innovation. This reduces the fragmentation of intellectual property, which is socially costly. However, to preserve the incentives to innovate, if a patent is granted the strength of protection should be generally higher than in the stand-alone case.
    Keywords: Intellectual Property Rights, Fragmentation, Patent Requirements
    JEL: O3 O34
    Date: 2010–10
  12. By: Fiedler, Ingo C
    Abstract: The main objective of antitrust interventions is to assure competition in markets to benefit consumers. This paper challenges this common approach by examining the case of a satellite broadcasting network with monopoly power. First, satellite TV is identified as a two-sided market. It is then analyzed in the framework of the canonical model for two-sided markets developed by Rochet & Tirole (2004). The main finding is that the satellite network maximizes his profits by choosing a price formation which maximizes the overall welfare of all market participants. Even if the satellite network uses his monopoly power to introduce a fee to receive satellite TV, it would do so only until the semi-elasticity of the amount of consumers in regard to the per-interaction-price equals the one of the TV stations – exactly the point where welfare is maximized. It is therefore concluded that antitrust cases have to take a more in-depth look at two-sided markets before deciding that competition is best for consumers.
    Keywords: Antitrust, two-sided markets, broadcasting, welfare
    Date: 2010–10–25
  13. By: Manuel Pacheco Coelho
    Abstract: Recently, the Pew Environment Group released a study that finds that E. U. fisheries have failed to reduce fleet capacity thus exerting fishing pressure on stocks at two/three time sustainable levels. The members evaluated in this study accounted for more than 90% of European fisheries subsidies. Overcapacity and overcapitalisation of the sector was identified as the principal failure of the Common Fisheries Policy. The study also highlights that member-states failed to take environmental and social concerns into consideration when allocating public funding. This conclusion may be well important in the CFP reform (2012) and put again the discussion about the tools that can be used to get sustainable management and better cohesion. The idea of creating markets for fishing rights as a means of internalising the externalities derived from the common property nature of fisheries have received considerable attention by the founding fathers of Law and Economics and Fisheries Economics such as Coase, Scott and Christy. The idea is to create a market of individual transferable quotas (ITQs) and confide in the self-regulation of such a system to conduct the fisheries to the economic efficiency and to promote inter-temporal sustainable use of resources. Rights Based Management schemes have already been experimented in some specific fisheries and localizations. These experiences have a lot of teaching results about good practices of sustainable fisheries management and also about the limitations/ risks of these tools. These conclusions are fundamental to explore the feasibility of these tools as instruments of conservation in the CFP. The purpose of our Communication is to enter this debate and evaluate the Portuguese experience with rights based management.
    Keywords: Fisheries, Rights Based Management, Individual Transferable Quotas.
    Date: 2010–10
    Abstract: People’s self-regulatory focus may determine the effectiveness of stop-smoking campaigns. An experiment with 226 young smokers investigated the persuasiveness of different emotional appeals (fear-relief versus sadness-joy) for different self-regulatory foci (prevention versus promotion). A congruency effect emerges for attitude toward the advertisement and behavioral intentions: Young smokers with a promotion focus are more persuaded by sadness-joy than fear-relief campaigns, and the opposite is true for those with a prevention focus. As predicted by the regulatory relevancy principle, ad involvement mediates this effect.
    Date: 2010–09
  15. By: Regina M. Abrami (Harvard Business School); Yu Zheng (University of Connecticut)
    Abstract: Why have China's petrochemical and steel industries behaved so differently in seeking trade protection through antidumping measures? We argue that the patterning of antidumping actions is best explained in terms of the political economy of economic restructuring in pillar industries and its effect on industry structures. In the petrochemical industry, the shift toward greater horizontal consolidation and vertical integration reduces the collective action problems associated with antidumping petitions among upstream companies. It also weakens downstream companies lobbying in favor of the general protection of highly integrated conglomerates. In the steel industry, by contrast, national industrial policy in the absence of exogenous economic shocks fails to weaken local state interests sufficiently. Fragmented upstream and downstream channels instead persist, with strong odds against upstream suppliers waging a successful defense of material interests.
    Date: 2010–10
  16. By: Woodward, Richard T
    Abstract: There is an increasing tendency to use markets to induce the provision of environmental services. As such markets increase in scope, potential market participants might sell multiple environmental services. The question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously. Some have argued in favor of such “double dipping,” because it would make the provision of environmental services more profitable. In practice, however, most programs do not allow doubledipping. We show that if the optimal level of pollution abatement is sought, then double-dipping maximizes societal net benefits. However, if pollution policies are set in a piecemeal fashion, then the caps for each market are unlikely to be optimal and, in this second-best setting, a policy prohibiting double dipping can lead to greater social net benefits. We explore conditions under which a singlemarket policy is preferred, or equivalently, where piecemeal policies are likely to yield particularly inefficient outcomes.
    Keywords: Environmental policy; tradable discharge permits; numerical methods; stacking
    JEL: H41 Q0 Q58
    Date: 2010–04
  17. By: Rick van der Ploeg; Cees Withagen
    Abstract: The Green Paradox states that, in the absence of a tax on CO2 emissions, subsidizing a renewable backstop such as solar or wind energy brings forward the date at which fossil fuels become exhausted and consequently global warming is aggravated. We shed light on this issue by solving a model of depletion of non-renewable fossil fuels followed by a switch to a renewable backstop, paying attention to timing of the switch and the amount of fossil fuels remaining unexploited. We show that the Green Paradox occurs for relatively expensive but clean backstops (such as solar or wind), but does not occur if the backstop is sufficiently cheap relative to marginal global warming damages (e.g., nuclear energy) as then it is attractive to leave fossil fuels unexploited and thus limit CO2 emissions. We show that, without a CO2 tax, subsidizing the backstop might enhance welfare. If the backstop is relatively dirty and cheap (e.g., coal), there might be a period with simultaneous use of the non-renewable and renewable fuels.If the backstop is very dirty compared to oil or gas (e.g., tar sands), there is no simultaneous use. The optimum policy requires an initially rising CO2 tax followed by a gradually declining CO2 tax once the dirty backstop has been introduced. We also discuss the potential for limit pricing when the non-renewable resource is owned by a monopolist.
    Keywords: Green Paradox, Hotelling rule, non-renewable resource, renewable backstop, global warming, carbon tax, limit pricing
    JEL: Q30 Q42 Q54
    Date: 2010
  18. By: Ali Dib
    Abstract: The author develops a dynamic stochastic general-equilibrium model with an active banking sector, a financial accelerator, and financial frictions in the interbank and bank capital markets. He investigates the importance of banking sector frictions on business cycle fluctuations and assesses the role of a regulatory capital requirement in propagating the effects of shocks in the real economy. Bank capital is introduced to satisfy the regulatory capital requirement, and serves as collateral for borrowing in the interbank market. Financial frictions are introduced by assuming asymmetric information between lenders and borrowers that creates moral hazard and adverse selection problems in the interbank and bank capital markets, respectively. Highly leveraged banks are vulnerable and therefore pay higher costs when raising funds. The author finds that financial frictions in the interbank and bank capital markets amplify and propagate the effects of shocks; however, the capital requirement attenuates the real impacts of aggregate shocks (including financial shocks), reduces macroeconomic volatilities, and stabilizes the economy.
    Keywords: Economic models; Business fluctuations and cycles; Financial markets; Financial stability
    JEL: E32 E44 G1
    Date: 2010
  19. By: Kym Anderson (School of Economics, University of Adelaide)
    Abstract: Agricultural biotechnologies, and especially transgenic crops, have the potential to boost food security in developing countries by offering higher incomes for farmers and lower-priced and better quality food for consumers. That potential is being heavily compromised, however, because the European Union and some other countries have implemented strict regulatory systems to govern their production and consumption of genetically modified (GM) food and feed crops, and to prevent imports of foods and feedstuffs that do not meet these strict standards. This paper analyses empirically the potential economic effects of adopting transgenic crops in Asia and Sub-Saharan Africa. It does so using a multi-country, multi-product model of the global economy. The results suggest the economic welfare gains from crop biotechnology adoption are potentially very large, and that those benefits are diminished only very slightly by the presence of the European UnionÂ’s restriction on imports of GM foods. That is, if developing countries retain bans on GM crop production in an attempt to maintain access to EU markets for non-GM products, the loss to their food consumers as well as to farmers in those developing countries is huge relative to the slight loss that could be incurred from not retaining EU market access.
    Keywords: Transgenic crops, genetically modified food, agricultural biotechnology, food trade
    JEL: F13 F17 O32 O33 Q16 Q17 Q18
    Date: 2010–05

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