nep-reg New Economics Papers
on Regulation
Issue of 2010‒12‒11
fifteen papers chosen by
Oleg Eismont
Russian Academy of Sciences

  1. Effective Regulatory Institutions: The Regulator’s Role in the Policy Process, Including Issues of Regulatory Independence By Tom Winsor
  2. European telecommunication regulation: Effects on telecommunication providers By Veith, Tobias
  3. Transport Regulation From Theory to Practice: General Observations and a Case Study By Marco Ponti
  4. Capital Regulation after the Crisis: Business as Usual? By Hellwig, Martin
  5. Gas Release and Transport Capacity Investment as Instruments to Foster Competition in Gas Markets By Chaton, Corinne; Gasmi, Farid; Guillerminet, Marie-Laure; Oviedo, Juan Daniel
  6. Effective Regulatory Institutions for Air Transport: A European Perspective By Hans-Martin Niemeier
  7. Quality of government regulated goods By Moszoro, Marian
  8. The Regulation of Consumer Financial Products: An Introductory Essay with Four Case Studies By Campbell, John Y.; Jackson, Howell E.; Madrian, Brigitte C.; Tufano, Peter
  9. Is Regulation by Milestones Efficiency Enhancing? - An Experimental Study of Environmental Protection - By Andreas Freytag; Werner Güth; Hannes Koppel; Leo Wangler
  10. Outcome Performance Measures of Environmental Compliance Assurance: Current Practices, Constraints and Ways Forward By Eugene Mazur
  11. Intellectual Property Protection, Regulation and Innovation in Developing Economies - The Case of Indian Pharmaceutical Industry By Basant, Rakesh
  12. Public credit registries as a tool for bank regulation and supervision By Girault, Matias Gutierrez; Hwang, Jane
  13. The Future of Financial Liberalization in South Asia By Ashima Goyal
  14. Social movements, political battles, and new market emergence in pay television By Gurses, Kerem; Ozcan, Pinar
  15. Fighting hard core cartels By Hüschelrath, Kai; Weigand, Jürgen

  1. By: Tom Winsor
    Abstract: This paper discusses three connected aspects of regulation: (1) what makes a regulatory authority effective; (2) what is the legitimate role of a regulatory authority in the making and implementation of policy, and how that role may be regarded by others, and (3) the issue of independence of regulation from undue political intervention. It argues that regulators are usually established to carry out complex technical tasks which government is unable or unwilling to do, partly because government wishes to distance itself from responsibility for some decisions, but, having invested regulatory authorities with sometimes considerable powers which are more detailed and intrusive than any possessed by government over state-owned entities or industries, political or bureaucratic impatience or intolerance of that power sometimes takes over, and undue governmental pressure or interventions follow. These interventions come about either because of regulatory failures, or because politicians wish themselves to exercise regulatory powers which they regret having transferred to regulatory authorities. Regulatory independence from political intervention and regulatory freedom from political considerations is internationally recognised as an important facet of effective economic regulation, but despite that, it can come under such severe pressure that the system will fracture, causing severe loss of confidence in the regulatory system and in the reputation of the host government for fairness and respect for the integrity of the systems of checks and balances which has been established for the protection of investment. It argues that regulatory independence is as much about regulatory behaviour and legal status.
    Date: 2010–11
  2. By: Veith, Tobias
    Abstract: This paper considers the impact of European telecom regulation on the value of affected companies. Employing a repeating ARGARCH model, I compare the effect of three types of regulation which are categorized based on the addressed subject, i.e. cross-market, country-specific and company-specific regulation. While standard event study approaches are a special case of ARGARCH models, the approximation process chosen in this paper shows a better estimation of the stock price development based on autoregressive models and, thus, more robust estimation results for the reaction to a regulatory change. Turning to the economic results, I find positive reactions to crossmarket and country-specific regulation and negative reactions to regulation which directly addresses individual firms. The impact on volatility supports the findings of the returns analysis. These findings show that European Commission interventions are competition enhancing and support the expected performance of the affected companies in the telecommunications sector. However, while country-addressing interventions and company-addressing interventions follow similar aims, country-addressing interventions cause more uncertainty to a market because of the national process of governments' adjustments. Thus, the estimation results provide evidence that companies prefer direct European regulation over the implementation by national governments, independent of providers' incumbency. --
    Keywords: regulation,telecommunications,company value
    JEL: L51 L52 L86 L96 O31 O33
    Date: 2010
  3. By: Marco Ponti
    Abstract: Economic regulation is a controversial issue, especially in the transport sector. This paper analyses a number of general transport and mode-specific issues that can provide indications for setting up regulatory bodies and orienting their strategies. It also looks at a specific national case study (Italy) where no specific regulatory institution for the transport sector has existed until now.
    Date: 2010–11
  4. By: Hellwig, Martin
    Abstract: The paper discusses the reform of capital regulation of banks in the wake of the financial crisis of 2007/2009. Whereas the Basel Committee on Banking Supervision seems to go for marginal changes here and there, the paper calls for a thorough overhaul, moving away from risk calibration and raising capital requirements very substantially. The argument is based on the observation that the current system of risk- calibrated capital requirements, in particular under the modelbased approach, played a key role in allowing banks to be undercapitalized prior to the crisis, with strong systemic effects for deleveraging multipliers and for the functioning of interbank markets. The argument is also based on the observation that the current system has no theoretical foundation, its objectives are ill-specified, and its effects have not been thought through, either for the individual bank or for the system as a whole. Objections to substantial increases in capital requirements rest on arguments that run counter to economic logic or are themselves evidence of moral hazard and a need for regulation.
    Date: 2010–07
  5. By: Chaton, Corinne (Laboratoire de Finance des Marchés d'Energies); Gasmi, Farid (Toulouse School of Economics (ARQADE & IDEI)); Guillerminet, Marie-Laure (Hamburg University (FNU)); Oviedo, Juan Daniel (Universidad del Rosario)
    Abstract: Motivated by recent policy events experienced by the European natural gas industry, this paper develops a simple model for analyzing the interaction between gas release and capacity investment programs as tools to improve the performance of imperfectly competitive markets. We consider a regional market in which a measure that has an incumbent release part of its gas to a marketer complements a program of investment in transport capacity dedicated to imports by the marketer, at a regulated transport charge, of competitively-priced gas. First, we examine the case where transport capacity is regulated while gas release is not, i.e., the volume of gas released is determined by the incumbent. We then analyze the effect of the "artifcial" duopoly created by the regulator when the latter regulates both gas release and transport capacity. Finally, using information on the French industry, we calibrate the basic demand and cost elements of the model and perform some simulations of these two scenarios. Besides allowing us to analyze the economic properties of these scenarios, a policy implication that comes out of the empirical analysis is that, when combined with network expansion investments, gas-release measures applied under regulatory control are indeed effective short-term policies for promoting gas-to-gas competition.
    Keywords: Natural gas, Gas release, Regulation, Competition
    JEL: L51 L95
    Date: 2010–11
  6. By: Hans-Martin Niemeier
    Abstract: The heated debate on the regulatory framework for airports has highlighted the importance of creating good institutions for air transport in general. This paper defines the concept of effective regulatory institutions for air transport. It also describes the value chain for air transport and how the state intervenes with what type of regulatory institution. The paper concludes by highlighting the institutional reforms necessary to make regulation effective.
    Date: 2010–11
  7. By: Moszoro, Marian (IESE Business School)
    Abstract: Regulators face the difficult task of determining the sets of price and quality of government-regulated goods. While the profit-maximizing monopoly always produces less in quantity than under free competition, the level of quality produced by the monopoly is not unequivocal: it depends on its cost and demand functions. The social effect of quality change is not unequivocal either, because it depends, apart from the cost function change, on the shift and tilt change of the demand curve. The problem lies in determining how the price elasticity of basic need goods responds to quality change and whether this change of quality is socially desirable. This paper analyzes quality as a decision variable in the government-regulated goods sector. Because the quality of government-regulated goods remains an externality, in particular cases the optimal level of the quality of these goods can be determined. Paradoxically, rate-of-return regulation may even make it impossible to achieve Pareto-efficient contracts for government-regulated goods.
    Keywords: infrastructure; regulation quality; Coase Theorem;
    JEL: H54 L15 L51
    Date: 2010–10–07
  8. By: Campbell, John Y.; Jackson, Howell E.; Madrian, Brigitte C.; Tufano, Peter
    Abstract: The recent financial crisis has led many to question how well businesses deliver consumer financial services and how well regulatory institutions address problems in consumer financial markets. In response, the Obama administration proposed a new agency to oversee consumer financial services, and the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act embraced the Administration’s proposal by creating the Bureau of Consumer Financial Protection. Other regulatory reforms have been advanced, and in some cases adopted, in recent years, at both the federal and state level. In this paper, we provide an overview of consumer financial markets, detailing the purposes they serve, the extent to which they suffer from market failures or other deficiencies, and the structure of our current system of regulation. To illustrate our analytical framework, we present case studies on retirement savings, residential mortgages, payday lending, and mutual funds. We conclude with a series of observations on the limits of government intervention, suggestions about how to measure whether government intervention is successful, and potentially fruitful lines of future research and data collection.
    Date: 2010–09
  9. By: Andreas Freytag (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Hannes Koppel (Max Planck Institute of Economics, Jena); Leo Wangler (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: Viewing individual contributions as investments in emission reduction we rely on the familiar linear public goods- game to set global reduction targets which, if missed, imply that all payoffs are destroyed with a certain probability. Regulation by milestones does not only impose a final reduction target but also intermediate ones. In our leading example the regulating agency is Mother Nature but our analysis can, of course, be applied to other regulating agencies as well. We are mainly testing for milestone effects by varying the size of milestones in addition to changing the marginal productivity of individual contributions and the probability to lose.
    Keywords: Cumulative Public Goods, Milestones, Climate Change, Experiment.
    JEL: C92 D78 H41 Q54
    Date: 2010–12–02
  10. By: Eugene Mazur
    Abstract: This report analyses the experience of ten OECD countries in the design and implementation of quantitative indicators used to assess the outcomes of environmental enforcement authorities’ efforts to ensure compliance with pollution prevention and control regulations. To respond to the growing demand for results-oriented work methods and the need for performance management and accountability at the time of severe budget constraints, more and more environmental enforcement authorities are working to develop indicators to characterise improvements in behaviour of the regulated community (intermediate outcomes) or environmental conditions (final outcomes) stemming from their activities. The report considers six types of intermediate and final outcome performance measures, including compliance rates and indicators of improved environmental management practices and reduced risk. Based on the OECD criteria for the evaluation of environmental indicators – measurability, analytical soundness and policy relevance – the paper identifies key challenges for developing and using specific categories of compliance assurance outcome indicators and suggests several ways to improve their effectiveness. The review of a “toolbox” of existing outcome indicators and the analysis of their respective strengths and weaknesses suggests that it is not possible to identify a “best practice” approach or a universal optimal set of indicators. The functionality of individual outcome measures ultimately depends on their purpose (e.g. internal performance assessment or external accountability) and suitability for joint analysis with the enforcement authority’s resource (input) and activity (output) indicators. The report identifies several issues for further analysis.
    Keywords: environmental regulations, compliance assurance, compliance and enforcement, environmental authorities, environmental inspections, performance measurement, outcome indicators
    JEL: K32 K42 O57 Q56
    Date: 2010–06–10
  11. By: Basant, Rakesh
    Abstract: Historically, nations have modified their IP policies to support their development agenda. With the advent of TRIPS, the ability of countries to choose between different IP policy options has reduced considerably but some flexibility remains. Countries have tried to utilize this flexibility for their advantage but in certain respects the choices are difficult. In recent years, certain elements of the new IP regime in India have been vigorously debated in the context of the TRIPS mandated IP policy changes. Given the complex interface between economic development and IP regimes, a variety of arguments have been deployed to argue in favour or against these elements. The paper argues that an evaluation of the IP regime and regulation in developing countries needs to be done in the context of how they facilitate capability building especially through participation of domestic firms in global R&D and production networks. Opportunities for domestic firms to participate in global networks depend on a variety of inter-related factors like emerging technology regimes, changes in global industrial structures, strategies followed by MNCs and capabilities and strategies of domestic firms with respect to innovation. Consequently, the fine-tuning of the IP regime would require an understanding of these developments as well, often in the context of a specific sector. The paper uses this broad heuristic framework to analyze emerging IP policy needs for the Indian pharmaceutical sector and the role of other types of regulation. In the process it also provides some insights on how developing countries with decent technological capabilities can exploit regulatory flexibilities available in the post-TRIPS scenario.
    Date: 2010–11–22
  12. By: Girault, Matias Gutierrez; Hwang, Jane
    Abstract: This paper is about the importance of the information in Public Credit Registries (PCRs) for supporting and improving banking sector regulation and supervision, particularly in the light of the new approach embodied in Basel III. Against the backdrop of the financial crisis and the existence of information data gaps, the importance of complete, accurate and timely credit information in the financial system is evident. Both in normal times and during crises, authorities need a device that allows them to look at the universe of credits in a detailed and readily way. And more importantly, they need to develop tools that exploit as much as possible the information therein contained. PCR databases contain individual credit information on borrowers and their credits which makes it possible to implement advanced techniques that measure banks'credit risk exposure. It allows optimizing the prudential regulation ensuring that provisioning and capital requirements are properly calibrated to cover expected and unexpected losses respectively. It also permits validating banks'internal rating systems, performing stress tests and informing macroprudential surveillance. In this respect, it is envisioned that the existence of a PCR will be a key factor to enhance the supervision and regulation of the financial system. Furthermore, the extent, accuracy and availability of the information collected by the authorities will determine the usefulness of the PCR as part of their toolkit to monitor the potential vulnerabilities not only on a microprudential level, but also on a macroprudential one.
    Keywords: Banks&Banking Reform,Access to Finance,Financial Intermediation,Debt Markets,Bankruptcy and Resolution of Financial Distress
    Date: 2010–12–01
  13. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: The paper defines financial liberalization, distinguishing between liberalization of domestic financial markets and capital account convertibility. It then examines the stages and the strategy of Indian financial reform. The Indian strategy followed a well thought out sequence whereby full capital account liberalization was to come after deepening domestic markets, and improving government finances. One alone is dangerous without the others. The experience of the global crisis has validated the Indian strategy and also shown that foreign entry has benefits but cannot resolve all issues. Deepening domestic markets and better domestic and international regulation is a necessary prerequisite for full convertibility. The direction of future liberalization should be such as meets Indian needs of financial inclusion, infrastructure finance, and domestic market deepening.
    Keywords: liberalization, capital account convertibility, regulation, inclusion, markets.
    JEL: F36 G18
    Date: 2010
  14. By: Gurses, Kerem (La Salle); Ozcan, Pinar (IESE Business School)
    Abstract: This paper documents the development of pay TV in the United States. We show that when the first version of pay TV, over-the-air pay TV, came to the market, a social movement started by movie theatres and TV broadcasters to "protect free TV" blocked the emerging market. Later on, however, another technology with a similar business model, pay cable TV, became successful. A closer look into the factors leading to this success shows that regulatory voids, the ambiguity of the public interest frame, and the influence over public opinion can create windows of opportunity for a technology to emerge despite strong opposition from incumbent firms. We argue that in highly regulated industries, technology dominance can arise from windows of opportunity emerging amidst political battles.
    Keywords: technology; market emergence; social movement; regulation; organizational frames;
    Date: 2010–10–03
  15. By: Hüschelrath, Kai; Weigand, Jürgen
    Abstract: The paper provides a comprehensive survey of the economics behind the fight against hard core cartels. Differentiating between four subsequent stages - characterisation, welfare effects, enforcement and evaluation - the paper pays particular attention to cartel detection methods, the derivation of corporate fines, the quantification of private damages and possibilities to judge on the successfulness of cartel enforcement activities by competition authorities around the world. --
    Keywords: Competition Policy,Hard Core Cartels,Public Enforcement,Private Enforcement,Evaluation
    JEL: L41 K21
    Date: 2010

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