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on Regulation |
| By: | Arnold, Jens (OECD); Nicoletti, Giuseppe (OECD); Scarpetta, Stefano (OECD) |
| Abstract: | Using firm-level data for a sample of European countries, we focus on the effects that product-market regulations have on firm-level TFP growth. We proxy regulatory burdens using the OECD indicators of sectoral non-manufacturing regulations. These allow accounting for both the direct effects of sectoral regulation on within-sector performance and the indirect effects of sectoral regulation on firms in other sectors through intersectoral input-output linkages. Our econometric specification of TFP is based on a "neo-Schumpeterian" empirical specification in which productivity improvements depend on growth at the global technological frontier and a catch up term. We assume that regulation can affect productivity growth both directly and by slowing down the rate of catch up. We find that product market regulations that curb competitive pressures tend to reduce the productivity performance of firms. The negative effect is particularly strong on firms characterised by an above-average productivity growth. Domestic regulations that affect all regulated firms in the same way seem to be more important than border regulations in this context. |
| Keywords: | total factor productivity, firm-level data, product market regulation |
| JEL: | D24 L11 L51 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5511&r=reg |
| By: | Jeroen Klomp |
| Abstract: | Using data for more than 200 banks from 21 OECD countries for the period 2002 to 2008, we examine the impact of bank regulation and supervision on banking risk. |
| JEL: | E44 G2 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:164&r=reg |
| By: | Ashok Vir Bhatia |
| Abstract: | This paper builds on a Technical Note produced as part of the IMF’s 2010 Financial Sector Assessment Program (FSAP) review of the United States. It addresses enterprise-wide oversight of financial groups, a key tool to mitigate systemic risk. Focusing on legal arrangements, it recommends eliminating exceptions for holding companies owning certain limited-purpose banks, harmonizing arrangements for bank and thrift holding companies, and bringing into the net a few systemic nonbank financial groups, with the Federal Reserve as the sole consolidated regulator and supervisor. |
| Keywords: | Bank regulations , Bank supervision , Banking sector , Financial systems , Nonbank financial sector , United States , |
| Date: | 2011–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/23&r=reg |
| By: | Burtraw, Dallas (Resources for the Future); Fraas, Arthur G. (Resources for the Future); Richardson, Nathan (Resources for the Future) |
| Abstract: | Until recently, most attention to U.S. climate policy has focused on legislative efforts to introduce a price on carbon through cap and trade. In the absence of such legislation, the Clean Air Act is a potentially potent alternative. Decisions regarding existing stationary sources will have the greatest effect on emissions reductions. The magnitude is uncertain, but plausibly 10 percent reductions in greenhouse gas emissions from 2005 levels could be achieved at moderate costs by 2020. This is comparable to the reductions that would have been achieved under the Waxman-Markey legislation in the domestic economy. These measures do not include the switching of fuels, which could yield further reductions. The ultimate cost of regulation under the act hinges on the stringency of standards and the flexibility allowed. A broad-based tradable performance standard is legally plausible and would provide incentives comparable to the proposed legislation, at least in the near term. |
| Keywords: | climate policy, efficiency, EPA, Clean Air Act, NAAQS, coal |
| JEL: | K32 Q54 Q58 |
| Date: | 2011–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-11-08&r=reg |
| By: | David Wheeler |
| Abstract: | The failure of carbon regulation in the U.S. Congress has undermined international negotiations to reduce carbon emissions. The global stalemate has, in turn, increased the likelihood that vulnerable developing countries will be severely damaged by climate change. This paper asks why the tragic American impasse has occurred, while the EU has succeeded in implementing carbon regulation. Both cases have involved negotiations between relatively rich "Green" regions and relatively poor "Brown" (carbon-intensive) regions, with success contingent on two factors: the interregional disparity in carbon intensity, which proxies the extra mitigation cost burden for the Brown region, and the compensating incentives provided by the Green region. The European negotiation has succeeded because the interregional disparity in carbon intensity is relatively small, and the compensating incentive (EU membership for the Brown region) has been huge. In contrast, the U.S. negotiation has repeatedly failed because the interregional disparity in carbon intensity is huge, and the compensating incentives have been modest at best. The unsettling implication is that an EU-style arrangement is infeasible in the United States, so the Green states will have to find another path to serious carbon mitigation. One option is mitigation within their own boundaries, through clean technology subsidies or emissions regulation. The Green states have undertaken such measures, but potential free-riding by the Brown states and international competitors seems likely to limit this approach, and it would address only the modest Green-state portion of U.S. carbon emissions in any case. The second option is mobilization of the Green states’ enormous market power through a carbon added tax (CAT). Rather than taxing carbon emissions at their points of production, a CAT taxes the carbon embodied in products at their points of consumption. For Green states, a CAT has four major advantages: It can be implemented unilaterally, state-by-state; it encourages clean production everywhere, by taxing carbon from all sources equally; it creates a market advantage for local producers, by taxing transport-related carbon emissions; and it offers fiscal flexibility, since it can either offset existing taxes or raise additional revenue. |
| Keywords: | Carbon Emissions, Regulation, CAT |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:232&r=reg |
| By: | Paul de Bijl |
| Abstract: | Is the gradual introduction of facilities-based competition, by fine-tuning access regulation, working as intended? What can one learn from the Dutch experience? |
| JEL: | L51 L96 L98 O33 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:169&r=reg |
| By: | Coffinet, J.; Coudert, V.; Pop, A.; Pouvelle, C. |
| Abstract: | We assess the extent to which capital buffers (the capital banks hold in excess of the regulatory minimum) exacerbate rather than reduce the cyclical behavior of credit. We empirically study the relationships between output gap, capital buffers and loan growth with firm-level data for French banks over the period 1993—2009. Our findings reveal that bank capital buffers intensify the cyclical credit fluctuations arising from the output gap developments, all the more as better quality capital is considered. Moreover, by performing Granger causality tests at the bank level, we find evidence of a two-way causality between capital buffers and loan growth, pointing to mutually reinforcing mechanisms. Overall, those empirical results lend support to a countercyclical financial regulation that focuses on highest-quality capital and aims at smoothing loan growth. |
| Keywords: | Bank Capital Regulation, Procyclicality, Capital Buffers, Business Cycle Fluctuations, Basel III. |
| JEL: | G28 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:316&r=reg |
| By: | Charlot, Olivier (University of Cergy-Pontoise); Malherbet, Franck (University of Rouen); Terra, Cristina (University of Cergy-Pontoise) |
| Abstract: | This paper studies the impact of product and labor market regulations on informality and unemployment in a general framework where formal and informal firms are subject to the same externalities, differing only with respect to some parameter values. Both formal and informal firms have monopoly power in the goods market, they are subject to matching friction in the labor market, and wages are determined through bargaining between large firms and their workers. The informal sector is found to be endogenously more competitive than the formal one. We find that lower strictness of product or labor market regulations lead to a simultaneous reduction in informality and unemployment. The difference between these two policy options lies on their effect on wages. Lessening product market strictness increases wages in both sector but also increases the formal sector wage premium. The opposite is true for labor market regulation. Finally, we show that the so-called overhiring externality due to wage bargaining 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: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5519&r=reg |
| By: | Limodio, Nicola |
| Abstract: | This paper contains a critical discussion of the opening of the highway concession to the private sector in Italy over the past 20 years. It describes the political context, legal mechanisms and regulatory settings; offers an analysis of the changes in the equity composition of concessionaires after the introduction of public-private partnerships, quality standards, and tariff dynamics; and provides some examples. The Italian experience reflects the typical problems of the"build-now-regulate-later"approach recognized in the highway public-private partnership literature. The Italian model is also characterized by the existence of an overly complex regulatory framework, as well as the lack of a single agent in charge of contract enforcement and independent data collection.<BR> |
| Keywords: | Transport Economics Policy&Planning,Debt Markets,Roads&Highways,Infrastructure Economics,Bankruptcy and Resolution of Financial Distress |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5567&r=reg |
| By: | L. Lambertini; A. Tampieri |
| Abstract: | We modify the vertically differentiated duopoly model by André et al. (2009) replacing Bertrand with Cournot behaviour to show that firms may spontaneously adopt a green technology even in the complete absence of any form of regulation. |
| JEL: | L13 L51 Q55 Q58 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp730&r=reg |
| By: | Edlin, Aaron; Jennings, Richard; Farrell, Joseph |
| Abstract: | Although antitrust courts sometimes stress the competitive process, they have not deeply explored what that process is. Inspired by the theory of the core, we explore the idea that the competitive process is the process of sellers and buyers forming improving coalitions. Much of antitrust can be seen as prohibiting firms’ attempts to restrain improving trade between their rivals and customers. In this way, antitrust protects firms’ and customers’ freedom to trade to their mutual betterment. |
| Keywords: | Antitrust, Industrial Organization, Competition Policy, Law and Economics, Trade Regulation, Trade Restraints, Monopoly JEL Class: D2, 4; K2; L2, 4, 5; M2. |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:compol:1785382&r=reg |
| By: | Marina Figueira de Mello (Department of Economics PUC-Rio); Monica Barros (ENCE/IBGE) |
| Abstract: | In 2004, in the beginning of the first president Lula mandate, a complete regulatory reform of electricity was launched. In 2008, four years after, Brazilian Congress started an investigation of the causes of Brazilian relatively high electricity tariffs. The results of the investigation pointed out numerous reasons, but failed to identify generation costs as one of the main causes. In this paper the analysis done by Congress is broadened addressing the trend in electricity production costs. The main conclusions are that the implementation of auctions together with subsidies from state enterprises did not reduce future acquisition costs as much as expected, but successfully reduced the rhythm of price increases. The long run marginal expansion cost is increasing very fast because new hydro plants are ever more distant of consumption centers and environmental costs are difficult to mitigate. Thermal plants and other technologies, though increasing in importance, still have much higher prices. In case prices reflected marginal incremental costs, electricity prices would have been much higher. The fact that consumers do not see such high incremental costs, allow them to take wrong consumption decisions. As consumers are able to buy at prices lower than marginal cost, consumption levels go too far. Demand increases amplify the electricity market gap and reinforce the necessity of new investments. |
| Keywords: | Electricity; regulatory reform; energy auctions and generation costs. JEL Codes: L43 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:583&r=reg |
| By: | Frederick van der Ploeg (University of Oxford, University of Amsterdam); Cees Withagen (VU University Amsterdam) |
| 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: | 2010–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20100020&r=reg |
| By: | Frank A.G. den Butter (VU University Amsterdam) |
| Abstract: | In the analysis of the credit crisis of 2007-2010 a clear distinction should be made between (i) the initial shock; (ii) the propagation and amplification of the initial shock to the systemic crisis of the financial markets; and (iii) the transmission of the credit crisis to the real economic sector causing a major cyclical downturn now known as the great recession. This paper argues that banking supervision failed to anticipate and repair the market failure that caused the huge amplification of the relatively small initial shock. As the repair of market failure is the only sound economic argument for regulation, banking supervisors should now focus on the externalities that caused the amplification of the shock and use that knowledge for adequate macro-prudential supervision in the future. Macro-economic models can be helpful in this search for externalities. The character and timing of future shocks are unpredictable, but contagion in the propagation mechanisms should be mitigated as much as possible. |
| Keywords: | credit crisis; externalities; macro-prudential supervision; contagion; fallacy of composition |
| JEL: | E42 E58 G38 |
| Date: | 2010–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20100052&r=reg |
| By: | Knut Einar Rosendahl and Halvor Briseid Storrøsten (Statistics Norway) |
| Abstract: | Allocation of emission allowances may affect firms' incentives to invest in clean technologies. In this paper we show that so-called output-based allocation tends to stimulate such investments as long as individual firms do not assume the regulator to tighten the allocation rule as a consequence of their investments. The explanation is that output-based allocation creates an implicit subsidy to the firms' output, which increases production, leads to a higher price of allowances, and thus increases the incentives to invest in clean technologies. On the other hand, if the firms expect the regulator to tighten the allocation rule after observing their clean technology investment, the firms' incentives to invest are moderated. If strong, this last effect may outweigh the enhanced investment incentives induced by increased output and higher allowance price. |
| Keywords: | Emissions trading; allocation of quotas; abatement technology. |
| JEL: | H21 Q58 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:644&r=reg |
| By: | Paolo Zeppini (University of Amsterdam); Jeroen C.J.M. van den Bergh (Autonomous University of Barcelona, and VU University Amsterdam) |
| Abstract: | This article presents a model of sequential decisions about investments in environmentally dirty and clean technologies, which extends the path-dependence framework of Arthur (1989). This allows us to evaluate if and how an economy locked into a dirty technology can be unlocked and move towards the clean technology. The main extension involves the inclusion of the effect of recombinant innovation of the two technologies. A mechanism of endogenous competition is described involving a positive externality of increasing returns to investment which are counterbalanced by recombinant innovation. We determine conditions under which lock-in can be avoided or escaped. A second extension is "symmetry breaking" of the the system due to the introduction of an environmental policy that charges a price for polluting. A final extension adds a cost of environmental policy in the form of lower returns on investment implemented through a growth-depressing factor. We compare cumulative pollution under different scenarios, so that we can evaluate the combination of environmental regulation and recombinant innovation. |
| Keywords: | externalities; hybrid technology; lock-in; R&D; sequential decisions |
| JEL: | O33 Q55 |
| Date: | 2010–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20100107&r=reg |
| By: | Paula González (Department of Economics, Universidad Pablo de Olavide); Inés Macho-Stadler (Department of Economics, Universidad Autónoma de Barcelona) |
| Abstract: | Internationally, there is wide cross-country heterogeneity in government responses to dual practice in the health sector. This paper provides a uniform theoretical framework to analyze and compare some of the most common regulations. We focus on three interventions: banning dual practice, offering rewarding contracts to public physicians, and limiting dual practice (including both limits to private earnings of dual providers and limits to involvement in private activities). An ancillary objective of the paper is to investigate whether regulations that are optimal for developed countries are adequate for developing countries as well. Our results offer theoretical support for the desirability of different regulations in different economic environments. |
| Keywords: | Dual practice, optimal contracts, physicians' incentives, regulations. |
| JEL: | I11 I18 L51 H51 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:11.01&r=reg |
| By: | Eric Knight (Department of Geography and the Environment, University of Oxford, Oxford, UK); Nicholas Howarth (Department of Geography and the Environment, University of Oxford, Oxford, UK) |
| Abstract: | Much academic attention has been paid to the role of carbon pricing in developing a market-led response to low carbon energy innovation. Taking an evolutionary economics perspective this paper makes the case as to why price mechanisms alone are insufficient to support new energy technologies coming to market. In doing so, we set out the unique investment barriers in the clean energy space. For guidance on possible approaches to non-carbon price based policies that seek to tackle these barriers we turn to case studies from Asia, a region which has experienced a strong uptake in climate policy in recent years. |
| JEL: | Q48 Q42 Q55 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:ccepwp:0211&r=reg |
| By: | Hattori, Keisuke |
| Abstract: | In this paper, we characterize optimal environmental policy in a case where innovation in clean production technologies is developed and provided by a monopoly. Two policy instruments are considered: an emission tax on downstream polluting firms and an R& D subsidy for an upstream innovator in clean technologies. We find that (i) a higher emission tax may increase (decrease) R&D investment when the burden of the tax payment in the polluters' marginal costs and the price-elasticity of the demand for polluting goods are rather small (large), (ii) the social optimum can be achieved by the combined implementation of an emission tax that is smaller than an ex-ante Pigouvian rate and a subsidy that is equal to the rate of emission reduction due to the new technology, and (iii) if the policy instrument is limited to the emission tax, the second-best tax rate lies between the first-best rate and the ex-ante Pigouvian rate. We test our model by numerical simulation and demonstrate the possibility of a type of ``double dividend'' due to the emission tax. Three extensions of the model are then considered: Cournot competition in the polluting industry, a subsidy to polluters who adopt the new technology, and technology spillovers. |
| Keywords: | Environmental Tax; R&D; Environmental Damages; Patent |
| JEL: | L51 L13 Q55 Q53 Q58 |
| Date: | 2011–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28837&r=reg |
| By: | Zöttl, Gregor |
| Abstract: | Cap and trade mechanisms enjoy increasing importance in environmental legislation worldwide. The most prominent example is probably given by the European Union Emission Trading System (EU ETS) designed to limit emissions of greenhouse gases, several other countries already have or are planning the introduction of such systems.2 One of the important aspects of designing cap and trade mechanisms is the possibility of competition authorities to grant emission permits for free. Free allocation of permits which is based on past output or past emissions can lead to inefficient production decisions of firms’ (compare for example B¨ohringer and Lange (2005), Rosendahl (2007), Mackenzie et al. (2008), Harstad and Eskeland (2010)). Current cap and trade systems grant free allocations based on installed production facilities, which lead to a distortion of firms’ investment incentives, however.1 It is the purpose of the present article to study the impact of a cap and trade mechanism on firms’ investment and production decisions and to analyze the optimal design of emission trading systems in such an environment. |
| Keywords: | Emissions Trading; Free Allocation; Investment Incentives; Technology Mix |
| JEL: | H21 H23 Q55 |
| Date: | 2011–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:12151&r=reg |
| By: | Bruno Bosco (Department of Legal and Economic Systems, Università degli Studi di Milano-Bicocca); Lucia Parisio (Department of Legal and Economic Systems, Università degli Studi di Milano-Bicocca); Matteo Pelagatti (Department of Statistics, Università degli Studi di Milano-Bicocca) |
| Abstract: | In this paper we consider an oligopolistic market in which one firm can be monopolist on her residual demand function and derive implications on the shape of her profit function, which we show may not be concave in price. We propose a simple price-capping rule that induce the pivotal operator to compete for quantity instead of taking advantage of her monopoly. Then, we analyze the bidding behaviour of the dominant electricity producer oper- ating in the Italian wholesale power market (IPEX). This firm is vertically integrated and in many instances she acts as a monopolist on the residual demand. We find that, contrary to expectations, this pivotal firm refrains to exploit totally her unilateral market power and, therefore, bids at levels well below the cap. We discuss such a behaviour and derive implications for the setting of the price cap. |
| Keywords: | Electricity auctions, capacity constraints, price cap, optimal bidding |
| JEL: | C50 L11 L12 L43 L51 L94 Q41 Q48 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:mis:wpaper:20110202&r=reg |
| By: | Jordi Brandts (Universitat Autonoma de Barcelona); Stanley S. Reynolds (University of Arizona); Arthur Schram (University of Amsterdam) |
| Abstract: | In the process of regulatory reform in the electric power industry, the mitigation of market power is one of the basic problems regulators have to deal with. We use experimental data to study the sources of market power with supply function competition, akin to the competition in wholesale electricity markets. An acute form of market power may arise if a supplier is pivotal; that is, if the supplier's capacity is required in order to meet demand. To be able to isolate the impact of demand and capacity conditions on market power, our treatments vary the distribution of demand levels as well as the amount and symmetry of the allocation of production capacity between different suppliers. We relate our results to a descriptive power index and to the predictions of two alternative models: a supply function equilibrium (SFE) model and a multi-unit auction (MUA) model. We find that pivotal suppliers do indeed exercise their market power in the experiments. We also find that observed behavior is consistent with the range of equilibria of the unrestricted SFE model and inconsistent with the unique equilibria of two refinements of the SFE model and of the MUA model. |
| Keywords: | Market Power; Electric Power Markets; Pivotal Suppliers; Experiments |
| JEL: | C92 D43 L11 L94 |
| Date: | 2011–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20110033&r=reg |