nep-reg New Economics Papers
on Regulation
Issue of 2010‒12‒04
eleven papers chosen by
Oleg Eismont
Russian Academy of Sciences

  1. Four Essays on Imperfect Competition: Strategic Information Acquisition, Product Choice under Government Regulation, and Forward Trading By Ressner, Ludwig
  2. Case Study of Three German Banks Stuck in the Subprime Crisis By Peixin Zhang
  3. Seven Pillars of Wisdom By Giovanni Barone-Adesi
  4. Defensive Strategies in the Quality Ladders By Ivan Ledezma
  5. Product Market Regulation, Firm Size, Unemployment and Informality in Developing Economies By Olivier Charlot; Franck Malherbet; Cristina Terra
  6. Are Energy Efficiency Standards Justified? By Parry, Ian W.H.; Evans, David A.; Oates, Wallace E.
  7. Does Eco-Certification Have Environmental Benefits? Organic Coffee in Costa Rica By Blackman, Allen; Naranjo, Maria A.
  8. Rents in the European Power Sector due to Carbon Trading. By Cruciani, Michel; Keppler, Jan Horst
  9. Does the Fourth Entrant Make Any Difference? Entry and Competition in the Early U.S. Broadband Market By Xiao, Mo; Orazem, Peter
  10. Do Biofuel Subsidies Reduce Greenhouse Gas Emissions? By R. Quentin Grafton; Tom Kompas; Ngo Van Long
  11. Regulating An Experience Good In Developing Countries When Consumers Cannot Identify Producers By McQuade, Timothy; Salant, Stephen W.; Winfree, Jason

  1. By: Ressner, Ludwig
    Date: 2010–11–04
  2. By: Peixin Zhang
    Abstract: This paper is aimed at finding banks' destabilizing behaviors that explain why the impact of the crisis is so serious in the banking system. By comparing three German banks stuck in the crisis, I find that: I) the leverage is a common destabilizing factor and, ii) the banks were highly interconnected to other financial institutions and had a large maturity mismatch were more seriously affected by the crisis.
    Keywords: Systemic crisis, Leverage, Maturity mismatch, Banking regulation
    JEL: G14 G21 G28
    Date: 2010
  3. By: Giovanni Barone-Adesi (The Swiss Finance Institute, University of Lugano, Switzerland; The Rimini Centre for Economic Analysis (RCEA), Italy)
    Abstract: The persistence of financial instability calls into question the adequacy of the current regulatory regime. A critical review of the three pillars at the core of current financial regulation exposes some structural flaws. Four new pillars are proposed and compared with measures proposed to shore up the current financial architecture.
    Date: 2010–01
  4. By: Ivan Ledezma (Université Paris Dauphine, LEDa UMR 225 DIAL, IRD)
    Abstract: (english) This paper analyses the potentially defensive behaviour of patent race winners and its effect on aggregate R&D effort. It proposes a quality-ladders model that endogenously determines leaders technology advantages and who innovates. Product market regulation can have either a positive or a negative effect on R&D intensity. The negative effect is likely to be observed in highly deregulated economies. The positive influence arises in more regulated environments and it is stronger for larger innovative jumps. These steady-state equilibrium outcomes are consistent with puzzling and contrasting patterns stemming from data on manufacturing industries for 14 OECD countries during the period 1987-2003. _________________________________ (français) Dans cet article nous étudions le comportement potentiellement défensif des innovateurs et son effet sur l’effort agrégé d’innovation. Un modèle à échelles de qualité est proposé afin d’analyser l’émergence d’avantages technologiques qui, in fine, déterminent qui innove (le leader ou ses concurrents). Dans ce contexte, la réglementation de marché peut avoir un effet positif ou négatif sur l’intensité en R&D. Elle peut être négativement associée à l’effort d’innovation dans des environnements hautement dérèglementés. Par contre, en économies qui dépassent un certain seuil de réglementation, susceptible de limiter effectivement la construction de barrières stratégiques, la réglementation induit des incitations à innover. Ces prédictions sont cohérentes avec des tests empiriques menés sur un échantillon d’industries appartenant à 14 pays de l’OCDE durant la période 1987-2003.
    Keywords: Innovative leaders, quality ladders, product market regulation, R&D, Leaders innovants, modèle à échelles de qualité, réglementation.
    JEL: L13 O31 O33
    Date: 2010–09
  5. By: Olivier Charlot; Franck Malherbet; Cristina Terra
    Abstract: This paper studies the impact of product and labor market regulations on the number and size of firms in the formal and informal sectors, as well as on relative wages, relative size of the two sectors and overall unemployment. We show that entry costs in the formal sector tend to make informal firms smaller and more numerous than informal firms, i.e., such costs render the informal sector relatively more competitive. Furthermore, it is possible to reduce informality without increasing unemployment or reducing workers’ wage by reducing entry costs in the formal sector rather than reducing labor market regulations. We also highlight a number of externalities stemming from labor and product market imperfections, allowing the size of those distortions to differ across sectors. We show that, while the so-called overhiring externality takes place in both sectors, this translates into a smaller relative size of the informal sector.
    Keywords: Informality, product and labor, market imperfections, firm size
    JEL: E24 E26 J60 L16 O1
    Date: 2010
  6. By: Parry, Ian W.H. (Resources for the Future); Evans, David A.; Oates, Wallace E.
    Abstract: This paper develops and parameterizes an overarching analytical framework to estimate the welfare effects of energy efficiency standards applied to automobiles and electricity-using durables. We also compare standards with sectoral and economywide pricing policies. The model captures a wide range of externalities and preexisting energy policies, and it allows for possible “misperceptions”—market failures that cause underinvestment in energy efficiency.Automobile fuel economy standards are not part of the first-best policy to reduce gasoline: fuel taxes are always superior because they reduce the externalities related to vehicle miles traveled. For the power sector, potential welfare gains from supplementing pricing instruments with efficiency standards are small at best. If pricing instruments are not feasible, a large misperceptions failure is required to justify efficiency standards, and even in this case the optimal reductions in fuel and electricity use are relatively modest. Reducing economywide carbon dioxide emissions through regulatory packages (combining efficiency and emissions standards) involves much higher costs than pricing instruments.
    Keywords: standards, energy taxes, market failure, climate, power sector, gasoline
    JEL: Q48 Q58 H21 R48
    Date: 2010–11–23
  7. By: Blackman, Allen (Resources for the Future); Naranjo, Maria A.
    Abstract: Eco-certification of coffee, timber and other high-value agricultural commodities is increasingly widespread. In principle, it can improve commodity producers’ environmental performance, even in countries where state regulation is weak. However, evidence needed to evaluate this hypothesis is virtually nonexistent. To help fill this gap, we use detailed farm-level data to analyze the environmental impacts of organic coffee certification in central Costa Rica. We use propensity score matching to control for self-selection bias. We find that organic certification improves coffee growers’ environmental performance. It significantly reduces chemical input use and increases adoption of some environmentally friendly management practices.
    Keywords: certification, coffee, Costa Rica, propensity score matching
    JEL: Q13 Q20 Q56
    Date: 2010–11–22
  8. By: Cruciani, Michel; Keppler, Jan Horst
    Abstract: The European Union Emissions Trading Scheme (EU ETS) has imposed a price on the allowances for CO2 emissions of electricity companies. Integrating this allowance price into the price of electricity earns a rent for companies who have received these allowances for free. During Phase I, 2005–2007, rents corresponding to the aggregate value of allocated allowances amounted to roughly € 13 billion per year. However, due to the specific price-setting mechanism in electricity markets true rents were considerably higher. This is due to the fact that companies also that have not received any allowances gain additional infra-marginal rents to the extent that their variable costs are below the new market price after inclusion of the allowance price. Producers with low carbon emissions and low marginal costs thus also benefit substantially from carbon pricing. This paper develops a methodology to determine the specific interaction of the imposition of such a CO2 constraint and the price-setting mechanism in the electricity sector under the assumption of marginal cost pricing in a liberalized European electricity market. The article thus provides an empirical estimate of the true total rents of power producers during Phase I of the EU-ETS (2005–2007). The EU ETS generated in Phase I additional rents in excess of € 19 billion per year for electricity producers. These transfers are distributed very unevenly between different electricity producers. In a second step, the paper assesses the impact of switching from free allocation to an auctioning of allowances in 2013. We show that such a switch to auctioning will continue to create additional infra-marginal rents for certain producers and will leave the electricity sector as a whole better off than before the introduction of the EU ETS.
    Keywords: Carbon allowances; Electricity Market; European Union Carbon Trading Scheme;
    JEL: L94 Q48
    Date: 2010
  9. By: Xiao, Mo; Orazem, Peter
    Abstract: We study the importance of sunk costs in determining entry conditions and inferences about firm conduct in an adapted Bresnahan and Reiss (1991, 1994) framework. In our framework, entrants incur sunk costs to enter, while incumbents disregard these costs in deciding on continuation or exit. We apply this framework to study entry and competition in the local U.S. broadband markets from 1999 to 2003. Ignoring sunk costs generates unreasonable variation in firms’ competitive conduct over time. This variation disappears when entry costs are allowed. Once the market has one to three incumbent firms, the fourth entrant has little effect on competitive conduct.
    Keywords: entry; market structure; Sunk Costs; Broadband Market
    JEL: L13 L8
    Date: 2010–11–27
  10. By: R. Quentin Grafton; Tom Kompas; Ngo Van Long
    Abstract: Conventional wisdom suggests that subsidising biofuel production will reduce greenhouse gas (GHG) emissions. This paper shows that in many cases, and for a wide range of parameter values, this is not true. Biofuel subsidies can generate supply-side response by fossil fuel producers that accelerates their rate of extraction, even in the case where fossil fuel extraction costs are stock dependent. Thus, policies designed to reduce GHG emissions may, perversely, hasten climate change.
    Date: 2010
  11. By: McQuade, Timothy; Salant, Stephen W.; Winfree, Jason
    Abstract: In developing countries, consumers can buy many goods from either the formal sector or the informal sector and choose the sector to patronize based on the product's price there and anticipated quality. We assume that firms can produce in either sector and can adjust quality at a cost. In the long run, firms produce in the sector that is more profitable. As for the consumers, we assume they cannot assess quality prior to purchase and cannot, at a reasonable cost, identify the producer of what they are purchasing. Many products (meats, fruits, vegetables, fish, grains) sold both in formal groceries and, less formally, on the street fit this description. Using this model, we investigate how a change in regulations in the formal sector affects quality, price, aggregate production and the number of firms in each sector.
    Keywords: experience good, formal sector, informal sector, quality
    JEL: D43
    Date: 2010–11–24

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