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on Regulation |
| By: | Ana Espinola-Arredondo; Felix Munoz-Garcia (School of Economic Sciences, Washington State University) |
| Abstract: | This paper evaluates the welfare benefits of introducing environmental regulation in a market that is subject to the threat of entry. We consider complete and incomplete information settings, where potential entrants use the regulator’s tax policy and the incumbent’s output decisions in order to infer the incumbent’s cost structure. When the regulator is absent, we show that firms? entry-deterring practices increase pollution relative to complete information. Hence, under certain conditions, environmental regulation becomes more beneficial in incomplete than in complete information contexts. Our results, therefore, identify under which cases an under-or over-estimation of the welfare benefits of environmental regulation arises from ignoring the information setting in which firms interact. We also examine how this estimation error increases as firms become more symmetric in their production costs. |
| Keywords: | Entry deterrence; Signaling; Emission fees; Welfare Benefits |
| JEL: | D82 H23 L12 Q5 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:espinola-11&r=reg |
| By: | Didier Bensadon (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX) |
| Abstract: | The aim of this paper is to shed light on the role of legislators and lawyers in establishing accounting regulations concerning corporate groups in France during the 1930s and the Occupation (1940 - 1944). A review of bills proposing accounting regulation shows that no significant progress was to be achieved. Furthermore, while some lawyers called for a comprehensive regulation of corporate groups, no such progress was made during the inter-war period. Ultimately it's the Vichy government which introduced the first regulations on accounting subsidiaries in the French Plan Comptable and limited the reciprocal shareholdings in the Act of March 4, 1943. |
| Keywords: | Accounting history, corporate groups, accounting regulation, inter war period, Occupation period, France |
| Date: | 2011–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00640504&r=reg |
| By: | Camille Chaserant; Sophie Harnay |
| Abstract: | This article provides a rationalization of (at least partial) professional self-regulation resting on the joint production of individual and collective reputations and its impact on the quality of professional services. It presents a short model that aims to show that (i) a high-quality steady-state exists in a market for a credence goods and that (ii) the likelihood of high quality increases when the market is self-regulated by the profession in comparison to the situation where there is no self-regulation. The law and economics literature usually criticizes self-regulation as a modern form of corporatism; we show that it may help to regulate quality when clients are faced with opportunistic professionals. |
| Keywords: | professional services, credence goods, self-regulation, individual reputation, collective reputation |
| JEL: | K4 L14 L15 L43 L84 D8 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2011-32&r=reg |
| By: | Rob Aalbers; Viktoria Kocsis; Victoria Shestalova |
| Abstract: | <p>As distributed generation (DG) continues to expand, larger low-voltage networks will be required in the future. However, regulated distribution network operators (DNOs) need to invest in new infrastructure without knowing a relevant determinant of network costs, the future amount of DG.</p><p>Due to uncertainty, optimal network capacity needs to reflect the expected demand for capacity over all possible DG states. Therefore, not all capacity will be used if a low level of DG occurs. Optimal regulation that is set under asymmetric information about future DG needs to create incentives for the DNO to invest in this 'excess capacity' and also encourage optimal network utilization. In this case, an option menu that includes fixed fees and positive network charges on DG-producers fulfills these requirements and implements the first-best optimum. On the contrary, price-cap and revenue-cap regulation lead to either underinvestment or high information rents to the DNO.</p> |
| JEL: | L12 L51 Q42 Q48 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:192&r=reg |
| By: | Dominique Gu/'egan; Wayne Tarrant |
| Abstract: | Regulation and risk management in banks depend on underlying risk measures. In general this is the only purpose that is seen for risk measures. In this paper we suggest that the reporting of risk measures can be used to determine the loss distribution function for a financial entity. We demonstrate that a lack of sufficient information can lead to ambiguous risk situations. We give examples, showing the need for the reporting of multiple risk measures in order to determine a bank's loss distribution. We conclude by suggesting a regulatory requirement of multiple risk measures being reported by banks, giving specific recommendations. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1111.4417&r=reg |
| By: | Sarah Draus (CSEF) |
| Abstract: | This paper presents a model to analyze the consequences of competition in order-flow between a profit maximizing stock exchange and an alternative trading platform on the decisions concerning trading fees and listing requirements. Listing requirements, set by the exchange, provide public information on listed firms and contribute to a better liquidity on all trading venues. It is sometimes asserted that competition induces the exchange to lower its level of listing standards compared to a situation in which it is a monopolist, because the trading platform can free-ride on this regulatory activity and compete more aggressively on trading fees. The present analysis shows that this is not always true and depends on the existence and size of gains related to multi market trading. These gains relax competition on trading fees. The higher these gains are, the more the exchange can increase its revenue from listing and trading when it raises its listing standards. For large enough gains from multi-market trading, the exchange is not induced to lower the level of listing standards when a competing trading platform appears. As a second result, this analysis also reveals a cross - subsidization effect between the listing and the trading activity when listing is not competitive. This model yields implications about the fee structures on stock markets, the regulation of listings and the social optimality of competition for volume. |
| Keywords: | competition in order flow, fragmentation, listing requirements, stock exchanges |
| JEL: | G10 G18 G12 |
| Date: | 2011–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:296&r=reg |
| By: | Panayiotis P. Athanasoglou (Bank of Greece) |
| Abstract: | This paper examines the simultaneous relationship between bank capital and risk. A model is set up which assumes that banks’ decisions regarding capital and risk are made endogenously in a dynamic pattern. A simultaneous equation system was estimated using an unbalanced panel of SEE banks from 2001 to 2009. A key result for the whole sample of banks is the relationship between regulatory (equity) capital and risk which is positive (negative). However, a positive two-way relationship between regulatory capital and risk was found only in less than-adequately capitalized banks, which also increased substantially their risk in 2009. Thus, banks’ decisions differentiate between equity capital and risk and regulatory capital and risk. A positive, significant and robust effect of liquidity on capital was identified. Both regulatory and equity capital exhibit procyclical behavior, whilst the relationship between risk and rate of growth of GDP is ambitious. |
| Keywords: | Banking; capital;risk;liquidity;regulation; dynamic panel estimation |
| JEL: | C33 G21 G32 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:137&r=reg |
| By: | Coskun, Yener |
| Abstract: | As observed at least in last two decades, financial engineering has not only changed the way of doing business in finance world, but also has changed daily life of average citizens in the leading economies. Structured products named as weapons of mass destruction in some post-crisis comments. But it is fair to say that few people could understand the nature and risks of these instruments before the crisis. By using literature review and case study analysis, the author analyses how financial regulation and supervision have failed to understand/manage the financial engineering products during/before the global financial crisis. In this context, we discuss the measures to enhance good regulatory governance in engineered products. We conclude however engineered products have important benefits to the global economy, regulatory/supervisory structure should be improved for better firm/system wide risk management. Secondly, there are four components to improve prudential regulatory/supervisory framework of structured products. Those are, timely/effectively action to the balance sheet problems, to increase the effectiveness of the risk management, to improve independence and quality of prudential regulation/supervision and to increase accountability of supervisors. |
| Keywords: | Financial engineering; structured finance; financial crisis; risk management; regulation |
| JEL: | G38 G32 G24 |
| Date: | 2011–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34838&r=reg |
| By: | Jay Surti; Julian T. S. Chow |
| Abstract: | This paper assesses proposals to redefine the scope of activities of systemically important financial institutions. Alongside reform of prudential regulation and oversight, these have been offered as solutions to the too-important-to-fail problem. It is argued that while the more radical of these proposals such as narrow utility banking do not adequately address key policy objectives, two concrete policy measures - the Volcker Rule in the United States and retail ring-fencing in the United Kingdom - are more promising while still entailing significant implementation challenges. A risk factor common to all the measures is the potential for activities identified as too risky for retail banks to migrate to the unregulated parts of the financial system. Since this could lead to accumulation of systemic risk if left unchecked, it appears unlikely that any structural engineering will lessen the policing burden on prudential authorities and on the banks. |
| Keywords: | Bank regulations , Bank supervision , Banking , Commercial banks , Fiscal risk , Risk management , Securities markets , United Kingdom , United States , |
| Date: | 2011–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/236&r=reg |
| By: | Nicolas Veron (Peterson Institute for International Economics) |
| Abstract: | The constantly developing global financial system needs better risk assessments than Credit Rating Agencies (CRAs) have been collectively able to deliver during recent crises. More comprehensive public disclosure by issuers on their financial risks, which would not require intermediation by CRAs, is the best chance for new and better risk assessment methodologies and practices to emerge. To put it in a simplistic but concise way, what is needed is "a John Moody for the 21st century." CRAs themselves can perhaps be somewhat improved by adequate regulation and supervision, but public policy initiatives that focus only on CRAs are unlikely to adequately address the need for substantially better financial risk assessments. If real progress is to be made towards a better public understanding of financial risks, it will have to involve innovative approaches that even well-regulated CRAs, on the basis of recent experience, may not be the best placed to deliver. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb11-21&r=reg |
| By: | Christopher Jeffords (Department of Agriculture and Resource Economics at University of Connecticut) |
| Abstract: | Preference-directed regulation (PDR) can supplement traditional environmental policies through frequent regulatory revision(Livermore, 2007). Stakeholders can use PDR to garner popular support for a specific policy. By providing individuals with information that augments their opinions about the effectiveness of a policy at driving environmental outcomes, stakeholders can induce preference switching in favor of or in detriment to a specific policy. This paper documents the extent to which this is true using cross-sectional data from an original national survey where individuals were asked to choose one of three policies aimed at reducing the number of products manufactured in environmentally damaging ways. Proxies for policy-specific opinions about the effectiveness of each policy are extracted from the data and form the central focus of inducing preference switching. PDR is operationalized by exogenously augmenting individual opinions via counterfactual simulations within a limited information discrete choice model. The results demonstrate that the extent of preference switching depends not only on the relative change in opinion for a specific policy, but that different forms of PDR may be more effective at inducing preference switching. The substitution patterns arising from the counterfactual simulations are further explained by analytically demonstrating the mitigation of the Independence of Irrelevant Alternatives property endemic to traditional multinomial choice models (i.e., full information). Additional empirical results are documented by comparing the results to a full information model, including downward bias in mean utility levels and individual-level preference switching across the limited and full information conditional choice utilities. |
| Keywords: | Discrete Choice, Limited Information, Preference Switching, Survey Data, Environmental Policy, Preference-Directed Regulation |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:zwi:wpaper:1&r=reg |
| By: | Acemoglu, Daron; Aghion, Philippe; Bursztyn, Leonardo; Hemous, David |
| Abstract: | This paper introduces endogenous and directed technical change in a growth model with environmental constraints. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both .carbon taxes. and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth. |
| Keywords: | directed technological change; environment; exhaustible resources; innovation |
| JEL: | C65 O30 O31 O33 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8660&r=reg |
| By: | Hüschelrath, Kai; Müller, Kathrin |
| Abstract: | We use T-100 traffic data and DB1B fare data from the U.S. Department of Transportation to identify patterns and effects of entry by network carriers and low-cost carriers in non-stop U.S. airline markets. For the sample period from 1996 to 2009, we find that entry activity of low-cost carriers did not only experience significant absolute increases but also led to substantial fare reductions. As route entries by network carriers do not have comparable effects, the existence and expansion of low-cost carriers must be considered as the main driver of competition in the domestic U.S. airline industry. -- |
| Keywords: | Airline industry,liberalisation,entry,low-cost carriers |
| JEL: | L40 L93 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11059&r=reg |