nep-reg New Economics Papers
on Regulation
Issue of 2011‒02‒05
sixteen papers chosen by
Oleg Eismont
Russian Academy of Sciences

  1. Dynamics of Rate-of-Return Regulation By Nezlobin, Alexander; Rajan, Madhav V.; Reichelstein, Stefan
  2. Credit Rating Agencies By Jakob de Haan; Fabian Amtenbrink
  3. Basel III ans Systemic Risk Regulation - What Way Forward? By Co-Pierre Georg
  4. Communicating Bailout Policy and Risk Taking in the Banking Industry By Jakob Bosma
  5. Environmental and Climate Innovation: Limitations, Prices and Policies By Jeroen C.J.M. van den Bergh
  6. The disciplinary power of accounting-based regulation: the case of building societies, circa 1960 By Batiz-Lazo, Bernardo; Noguchi, Masayoshi
  7. Pollution Control Instruments in the Presence of an Informal Sector By Sudeshna Chattopadhyay; Sarmila Banerjee; Katrin Millock
  8. End of the line: Railroads in Chile By Raimundo Soto
  9. The changing role of the state in the Dutch healthcare system By Götze, Ralf
  10. Measuring Costs And Benefits Of Non-Tariff Measures In Agri-Food Trade By Beghin, John C.; Disdier, Anne-Celia; Marette, Stephan; van Tongeren, Frank
  11. Does Energy Consumption Respond to Price Shocks? Evidence from a Regression-Discontinuity Design By Paulo Bastos; Lucio Castro; Julian Cristia; Carlos Scartascini
  12. Transformation of the state? Reactions to the privatization of security in Great Britain By Joachim, Jutta
  13. Legislating on car emissions: What drives standards in EU environmental policy? By Deters, Henning
  14. Cross country differences in job reallocation: the role of industry, firm size and regulations By John Haltiwanger; Stefano Scarpetta; Helena Schweiger
  15. The Price Responsiveness of Housing Supply in OECD Countries By Aida Caldera Sánchez; Åsa Johansson
  16. The impact of power market reforms on electricity price-cost margins and cross-subsidy levels: a cross country panel data analysis By Erdogdu, Erkan

  1. By: Nezlobin, Alexander (New York University); Rajan, Madhav V. (Stanford University); Reichelstein, Stefan (Stanford University)
    Abstract: Under Rate-of-Return regulation, a firm's product prices are constrained by the requirement that investors do not earn more an allowable return on the firm's assets. This paper examines the dynamic properties of the Rate-of-Return regulation process when the regulated firm periodically undertakes new capacity investments. Our analysis identifies prices that correspond to stationary values of the regulation process. It is shown that the underlying depreciation rules for property, plant and equipment determine whether these stationary prices will be above, equal to, or below the long-run marginal cost of providing the regulated service. We provide conditions under which the Rate-of-Return regulation process is dynamically stable so that prices indeed converge to their stationary values. The overall efficiency of this regulation method is shown to depend on how well the applicable depreciation schedule matches the productivity pattern of the assets in use.
    Date: 2011–01
  2. By: Jakob de Haan; Fabian Amtenbrink
    Abstract: This paper critically reviews the debate on CRAs and, in the light thereof, analyses the European regulatory approach to CRAs, thereby combining insights from economics and law. We first provide some basic background on the function of CRAs. Thereafter, we focus on the two main tasks for which CRAs have come under criticism, namely the issuing of sovereign ratings and the rating of structured instruments. Finally, we zoom in on the question of whether and how CRAs should be regulated given their function, focusing on recent European legislation that aims to standardize the conduct of CRAs.
    Keywords: Credit rating; regulation
    JEL: G21 G18
    Date: 2011–01
  3. By: Co-Pierre Georg (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: One of the most pressing questions in the aftermath of the financial crisis is how to deal with systemically important financial institutions (SIFIs). The purpose of this paper is to review the recent literature on systemic risk and evaluate the regulation proposals in the Basel III framework with respect to this literature. A number of shortcomings in the current framework are analyzed and three measures for future reform are proposed: counter-cyclical risk-weights, dynamic asset value correlation multipliers, and enhanced transparency requirements for SIFIs.
    Keywords: systemic risk, SIFIs, regulation
    JEL: C63 E52 E58 G21
    Date: 2011–01–27
  4. By: Jakob Bosma
    Abstract: This paper considers the effects of imperfectly communicated information about whether a regulator initiates a bailout program for financially distressed banks. The theoretical framework allows for determining whether, and to what extent, it is optimal for a regulator to be imprecise in communicating its bank bailout strategy. Banks do not only rely on their prediction of the regulator’s action, but also on their beliefs about other banks’ predictions to infer the regulator’s strategy. Results indicate that the regulator may substitute higher capital adequacy requirements for being less precise in communicating whether to initiate a bailout program to maintain risk taking by banks.
    Keywords: bank bailout support; noisy communication; regulation; risk taking
    JEL: D82 L51
    Date: 2011–01
  5. By: Jeroen C.J.M. van den Bergh
    Abstract: There is currently much hope about environmental innovation and green technologies, notably as a response to the threat of climate change. This paper offers a critical perspective on the role of technological innovation to solving environmental problems, based on considering empirical economic studies, energy and environmental rebound, the energy return on energy investment (EROEI) of alternative energy technologies, and various crowding out effects. Features of green technologies and motives of green innovators are briefly discussed. This is followed by an examination of the desirable mix of environmental and innovation policies to stimulate environmental innovation, to escape current and to evade early new lock-ins, and to avoid the occurrence of a “green paradoxâ€. This involves an evaluation of specific policy instruments from an environmental innovation angle. An extended argument is offered to clarify that environmental (CO2) pricing is crucial – even though insufficient – for environmental innovation to deliver definite solutions. In other words, environmental innovation (policy) is no substitute for environmental regulation (through prices). The paper also discusses the importance for environmental innovation of international agreements for regulation of greenhouse gas emissions and international coordination of innovation efforts.
    Keywords: climate change; environmental regulation; EROEI; green paradox; rebound; sustainability transition; technological diversity Length 25 pages
    Date: 2011–01
  6. By: Batiz-Lazo, Bernardo; Noguchi, Masayoshi
    Abstract: This paper examines how accounting–based regulation was introduced through the House Purchase and Housing Act, 1959 (HPHA59) and Building Societies Act, 1960 (BSA60). It also tells how it was put into practice by the Registrar of Friendly Societies (RFS). The discussion is framed by the so called ‘disciplinary perspective’ of accounting as represented by Hoskin and Macve (1986; 1988; 1994a; 1994b; 1996; 2000). Fieldwork documents cases of intervention by the RFS under new powers granted by BSA60. These new powers were used to discipline targeted societies or those revealing inadequate use of their funds and thus, observed important deviations from specified accounting-based criteria which was generally recognized as financially sound within the industry. As a result we provide evidence of how accounting-based regulation affected the operation of the societies. This evidence amends other studies claiming that managers of British financial intermediaries disregarded accounting information in their operation and strategic plans (or that they incorporated such criteria until the 1990s).
    Keywords: accounting-based regulation; House Purchase and Housing Act; 1959 (HPHA59); Building Societies Act; 1960 (BSA60); Chief Registrar of Friendly Societies (CRFS); the Building Societies Association (Association); disciplinary power; reserve ratio
    JEL: N8 M41 N2
    Date: 2011–01
  7. By: Sudeshna Chattopadhyay (Bidhannagar College - EB-2 Sector - I); Sarmila Banerjee (University of Calcutta - Kolkata); Katrin Millock (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: We examines the challenges faced by the regulator in managing pollution when there is a linkage between a formal and an informal industrial sector across the stages of production. The formal sector is more productive than the informal sector and the latter saves cost by evading pollution regulation due to incomplete monitoring. This creates a natural tendency for the more polluting processes to be concentrated in the informal sector. We show the unintended effects of the standard Pigouvian tax (emission fee), which might lead to further deterioration by encouraging the shift of stages in favour of the informal sector. Instead, we propose a second-best hybrid instrument, comprised of a tax on polluting input and a subsidy on proper disposal of residual waste.
    Keywords: Emissions tax, informal sector, pollution control, vertical production.
    Date: 2010–12
  8. By: Raimundo Soto
    Abstract: Between 1860 and 1950, railroads in Chile were synonym of modernization, integration, and economic development. By the 1970s railroads were bankrupt and socially discredited, surviving out of government subsidies. By 2000, passenger services had disappeared but private sector freight operations were revitalized after swift reforms. We review the Chilean reforms and experience, focusing on regulation, public sector involvement and political interference, market entry, vertical integration, and externalities. Perhaps uniquely, two different forms of private sector participation in freight operations emerge after reforms: a vertically integrated, privatized railroad and a state-owned, open-access, concession system.
    Keywords: Railways, divestiture, regulation, industrial organization.
    JEL: L92 L51 L43
    Date: 2011
  9. By: Götze, Ralf
    Abstract: This paper deals with the changing role of the state in the Dutch healthcare system. At the eve of the first oil crisis the Netherlands had a relatively compound healthcare system combining several characteristics of the three Western healthcare system types: National Health Service, social health insurance system, and private health insurance system. Comparative case-studies on OECD countries indicate a hybridization trend from relatively pure to mixed healthcare systems during the era of 'permanent austerity'. The adequate question is therefore, how and why the role of the state has changed in the relatively mixed Dutch social health insurance system. In order to approach this research question in a systematic way, we distinguish between three dimensions of the healthcare system: regulation, financing, and service provision. In the regulation dimension we observe an increasing state influence on coverage by an incremental socialization of the private sector. This progress culminated in 2006 in the merger of sickness funds and private health insurances into a functional social health insurance under private law. Since the early 1980s the state also directly intervened in the corporatist bargaining of providers and insurers in order to contain costs and regain global competiveness. At the beginning of the new millennium tight budgets resulting in long waiting lists were no longer accepted against the background of a booming economy. Instead, the role of competition increased through new opportunities and incentives for selective contracting between insurers and providers. Therefore, we observe a shift from corporatist self-regulation towards state-regulated market competition within the institutional framework of a social health insurance system. This ongoing reform process towards a welfare market for medical goods was supported by the main political parties on the left and right in order to enhance efficiency and safeguard solidarity. -- Gegenstand dieses Papiers ist die veränderte Rolle des Staates im niederländischen Gesundheitssystem. Vor der ersten Ölkrise zeichneten sich die Niederlande durch ein vergleichsweise gemischtes Gesundheitssystem aus, das einzelne Elemente der drei westlichen Gesundheitssystemtypen beinhaltete: Nationaler Gesundheitsdienst, Sozialversicherungssystem und Privatversicherungssystem. Vergleichende politikwissenschaftliche Studien zeigen einen Hybridisierungstrend in der OECD-Welt von eher idealtypischen zu hybriden Gesundheitssystemen seit dem Ende des Goldenen Zeitalters der Wohlfahrtstaaten in den 1970er Jahren. Daraus ergibt sich die Frage, wie sich die Rolle des Staates im bereits zum Ausgangspunkt vergleichsweise gemischten niederländischen Sozialversicherungssystem entwickelt. Zur systematischen Beantwortung dieser Frage wird in diesem Papier zwischen drei Dimensionen eines Gesundheitssystems unterschieden: Regulierung, Finanzierung und Leistungserbringung. In der Regulierung zeigt sich ein deutlicher Anstieg des Staatseinflusses bei der Absicherung durch eine inkrementelle Sozialisierung der Privatversicherung. Dieser Prozess fand 2006 mit der Verschmelzung der gesetzlichen und privaten Krankenversicherung zu einer funktionalen Sozialversicherung auf privater Basis seinen vorläufigen Höhepunkt. Auch in der Interaktion zwischen Versicherern und Leistungserbringern baute der Staat seit Anfang der 1980er Jahre stetig seinen direkten Einfluss aus, um mit einer strikten Kostendämpfung die internationale Wettbewerbsfähigkeit der Niederlande zu verbessern. Zur Jahrtausendwende war die restriktive staatliche Budgetplanung allerdings angesichts steigender Wartezeiten nicht mehr vermittelbar, wodurch verstärkt Möglichkeiten und Anreize für mehr Vertragswettbewerb geschaffen wurden. Damit wurde die für Sozialversicherungssysteme typische korporatistische Selbstverwaltung schrittweise unterhöhlt und durch Elemente eines staatlich regulierten Wettbewerbs ersetzt. Diese sich weiterhin im Prozess befindliche Hinwendung zu einem Wohlfahrtsmarkt für Gesundheitsgüter wurde von den relevanten linken und bürgerlichen Parteien in unterschiedlichen Koalitionen in der Überzeugung mitgetragen, Effizienzpotenziale zu heben und die Solidarität nicht zu gefährden.
    Date: 2010
  10. By: Beghin, John C.; Disdier, Anne-Celia; Marette, Stephan; van Tongeren, Frank
    Abstract: This paper provides a systematic welfare-based approach to analyze the impact of non-tariff measures (NTMs) on trade and welfare in presence of market imperfections. We focus on standard-like measures such as technical barriers and sanitary and phytosanitary regulations. The approach overcomes the shortcomings of the mainstream approach based on the analysis of forgone trade caused by trade costs. The latter ignores market imperfections: welfare increases when NTMs are removed and trade expands. We explain how to account for external effects and market failures in trade-focused welfare analysis, leading to a more balanced overall assessment of measures despite a potential reduction of trade flows. We show that the relationship between trade, welfare, and NTMs is complex. The optimum NTM is often not zero. An application to shrimp trade illustrates the feasibility of the proposed approach. The illustration shows that the reinforcement of a food safety standard can be socially preferable to the status-quo situation, both domestically and internationally
    Keywords: externality; trade; Welfare; Non-tariff measures; NTM
    JEL: D61 D62 F13 Q17
    Date: 2011–01–24
  11. By: Paulo Bastos; Lucio Castro; Julian Cristia; Carlos Scartascini
    Abstract: Este trabajo forma parte de una serie de estudios realizados en el marco del proyecto “La efectividad de las redes de protección social: El rol de los sistemas integrados de información social”. Los estudios de caso fueron realizados en el período 2007-08. Se agradecen los comentarios de Amélia Cohn, Lúcia Maria Modesto Pereira y Paulo de Martino Jannuzzi. El texto fue traducido y editado en español por Juan Ernesto O. S. Alonso.
    Keywords: Energy consumption, Elasticity of demand, Regulation of public utilities, Regression discontinuity design, Public policy
    JEL: H83 I38
    Date: 2011–01
  12. By: Joachim, Jutta
    Abstract: Private Military and Security Companies (PMSCs) have increasingly received attention from International Relations scholars. While most of the research has thus far been conducted with the aim to define the actor, assess the consequences of the services they perform for states' monopoly over the use of force, or to evaluate the options for regulation, societal responses to these companies have been largely ignored. Focusing on Great Britain and the consultative processes that have been initiated by the Foreign and Commonwealth Office with different stakeholders on the options for regulating PMSCs since 2001, this paper constitutes a first step in filling this void in the literature. The analysis of the positions of non-governmental organizations, parlamentarians, the government, and PMSCs is insightful in two respects: First, it sheds light on why the British government has thus far refrained from adopting authoritative controls for PMSCs despite the widely shared assumption that some form of regulation is needed. Second, the findings suggest that a transformation of the state is underway at the intersubjective level. PMSCs and privatization processes in the realm of security are increasingly seen as normal and their legitimacy is no longer questioned. --
    Date: 2010
  13. By: Deters, Henning
    Abstract: The working paper examines the decision-making process of what has most likely been the most contentious European environmental policy-item in 2009: the regulation 443/2009 setting carbon dioxide emission performance standards for new passenger cars. In contrast to the empirical trend of rather stringent protection levels, where environmental front-runner countries, encouraged by the Commission and the European Parliament, are able to set the pace, the regulation in question was largely shaped by the most reluctant member state's Germany with its high-volume, premium car manufacturers.By process-tracing the legislative decision-making, the paper accounts for this lowest-common-denominator outcome. Commission and EP had 'greener' preferences than the Council. Yet, both actors suffered from a of lack internal consistency, with national differences leading to strong in-fights between Commissioners and limiting the voting coherence of EP party-groups. The issue was therefore already highly politicized at the agenda-setting stage. This, and the fact that the dossier was handled in a fast-track procedure, curtailed Commission influence. In the Council negotiations, Germany was able to muster a potential blocking minority together with those, mostly east-European countries, were subsidiaries of German car companies are located. 'Greener' member states were, however, not prepared to veto down the regulation although they criticized its lack of ambition. -- Dieses Arbeitspapier untersucht den Entscheidungsprozess eines der am stärksten umstrittenen Gegenstände europäischer Umweltpolitik der vergangenen Jahre: Die Verordnung 443/2009 zur Verringerung der CO2-Emissionen von Personenkraftwagen. Im Gegensatz zu dem empirischen Trend eher strenger Schutzniveaus, bei dem die umweltpolitischen Spitzenreiter, unterstützt von Kommission und Europäischem Parlament (EP), die Leitlinien vorgeben, war die hier untersuchte Verordnung stark von den Vorstellungen des am wenigsten ambitionierten Mitgliedstaates geprägt, in diesem Fall Deutschland, mit seiner volkswirtschaftlich bedeutsamen und stark am Premium-Markt orientierten Automobilindustrie. Das Papier führt eine Prozessanalyse der Politikformulierung durch, um dieses Ergebnis aufzuklären. Obwohl Kommission und EP tatsächlich eine ambitionierte Verordnung befürworteten, konnten sie sich im interinstitutionellen Entscheidungsprozess letztlich nicht durchsetzen. Beide Akteure litten unter der geringen internen Kohärenz ihrer Positionen. Die nationalen Positionsunterschiede führten zu intensiven Konflikten zwischen den involvierten Generaldirektionen auf der einen, und schwacher Parteigruppendisziplin auf der anderen Seite. In den Ratsverhandlungen vermochte Deutschland gemeinsam mit den vorwiegend osteuropäischen Ländern, in denen Tochtergesellschaften und Produktionspartner deutscher Automobilhersteller ansässig sind, eine potentielle Sperrminorität herzustellen. Die 'grüneren' Mitgliedstaaten waren hingegen nicht bereit, die Verordnung abzulehnen, obwohl sie deren Anspruchsniveau als zu gering kritisierten. Der intensive Verteilungskonflikt im Lager der Automobilherstellerländer konnte mittels einer raffinierten Regelung zur Lastenteilung gemindert werden, machte aber dennoch eine Entscheidung auf höchster politischer Ebene notwendig.
    Date: 2010
  14. By: John Haltiwanger (University of Maryland, NBER, IZA); Stefano Scarpetta (OECD, IZA); Helena Schweiger (EBRD)
    Abstract: Somewhat surprisingly, cross-country empirical evidence (at least in the cross section) does not seem to support the predictions of standard models that economies with stricter regulations on hiring and firing should have a lower pace of job reallocation. One problem in exploring these issues empirically has been the difficulty of comparing countries on the basis of harmonised measures of job reallocation. A related problem is that there may be unobserved measurement or other factors accounting for differences in job reallocation across countries. This paper overcomes these challenges by using harmonised measures of job creation and destruction in a sample of 16 developed and emerging economies (including four transition economies), exploiting the country, industry and firm size dimensions. The analysis of variance in the paper shows that firm size effects are a dominant factor in accounting for the variation in the pace of job reallocation across country, industry and size cells. However, even after controlling for industry and size effects there remain significant differences in job flows across countries that could reflect differences in labour market regulations. We use the harmonised data to explore this hypothesis with a difference-in-difference approach. We find strong and robust evidence that stringent hiring and firing regulations tend to reduce the pace of job reallocation.
    JEL: O1 P2 P5
    Date: 2010–07
  15. By: Aida Caldera Sánchez; Åsa Johansson
    Abstract: The responsiveness of housing supply to changes in prices bears important implications for the evolution of housing prices and the speed of adjustment of housing markets. This paper estimates the long-run price elasticity of new housing supply in 21 OECD countries based on a stock-flow model of the housing market estimated within an error correction framework. Estimates suggest that housing supply responsiveness to price changes varies substantially across countries. New housing supply is relatively more flexible in North America and some Nordic countries, while it is more rigid in continental European countries and in the United Kingdom. The responsiveness of housing supply depends not only on national geographical and urban characteristics but also on policies, such as land use and planning regulations. The estimates are broadly in line with the limited available evidence on the responsiveness of housing supply in OECD countries.<P>La Réactivité de l'Offre de Logements dans les Pays de l'OCDE<BR>La réactivité de l'offre de logements à l'évolution des prix a des implications importantes pour l'évolution des prix du logement et la vitesse d'ajustement des marchés du logement. Ce document estime l'élasticité-prix à long terme de l'offre de nouveaux logements dans 21 pays de l'OCDE basée sur une approche stock-flux du marché du logement et un modèle à correction d’erreurs. Selon les estimations, la réactivité de l'offre de logements aux changements de prix varie considérablement selon les pays. L’offre de logements nouveaux est relativement plus souple en Amérique du Nord et certains pays nordiques, tandis qu'elle est plus rigide dans les pays du continent européen et au Royaume-Uni. La réactivité de l'offre ne dépend pas seulement des caractéristiques géographiques et urbaines, mais aussi des politiques publiques, telles que les règles d'urbanisme et d'utilisation du sol. Les estimations sont globalement en ligne avec les rares estimations disponibles sur la réactivité de l'offre de logements dans les pays de l'OCDE.
    Keywords: housing market, housing supply, housing prices, land use regulation, prix des logements, marché des logements, offre de logements, Règles d'utilisation du sol
    JEL: H20 R21 R23 R31 R38
    Date: 2011–01–18
  16. By: Erdogdu, Erkan
    Abstract: One of the main expectations from power market reform has been a reduction in price-cost margins and cross-subsidy levels between industrial and residential consumers. This paper focuses on this issue by looking at the impact of the electricity industry reforms on residential and industrial electricity price-cost margins and their effect on cross-subsidy levels between consumer groups. Using panel data for 63 developed and developing countries covering the period 1982–2009, empirical models are developed and analyzed. The research findings suggest that there isn’t a uniform pattern for the impact of reform process as a whole on price-cost margins and cross-subsidy levels. Each individual reform step has different impact on price-cost margins and cross subsidy levels for each consumer and country group. Our findings imply that reform steps have different impacts in different countries, which supports the idea that reform prescription for a specific country cannot easily be transferred to another one. So, transferring the formal and economic structure of a successful power market in a developed country to developing countries is not a sufficient condition for good economic performance of the electricity industries in developing countries. Furthermore, the study suggests that power consumption, income level and country specific features constitute other important determinants of electricity price-cost margins and cross-subsidy levels.
    Keywords: Models with Panel Data; Power Market Reform; Electricity Prices
    JEL: C51 L11 Y40 L94
    Date: 2011

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