nep-reg New Economics Papers
on Regulation
Issue of 2012‒12‒15
eight papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Asymmetric Information and Inefficient Regulation of Firms Under the Threat of Revolution By Paul Maarek; Michael Dorsch; Karl Dunz
  2. Regulatory behaviour under threat of court reversal By Flavio Menezes; Magnus Söderberg; Miguel Santolino
  3. Fettered Consumers and Sophisticated Firms: Evidence from Mexico's Privatized Social Security Market By Fabian Duarte; Justine S. Hastings
  4. Have State Renewable Portfolio Standards Really Worked?: Synthesizing Past Policy Assessments By Gireesh Shrimali; Steffen Jenner; Felix Groba; Gabriel Chan; Joe Indvik
  5. Is Energy Storage an Economic Opportunity for the Eco-Neighborhood? By Hélène Le Cadre; David Mercier
  6. The interest group theory of financial development: evidence from regulation By Cagatay Bircan; David Hauner; Alessandro Prati
  7. Costly Litigation and Optimal Damages By A. Mitchell Polinsky; Steven Shavell
  8. Should we be Worried about the Green Paradox? Announcement Effects of the Acid Rain Program By Corrado Di Maria; Ian A. Lange; Edwin van der Werf

  1. By: Paul Maarek; Michael Dorsch; Karl Dunz (THEMA, Universite de Cergy-Pontoise and THEMA; The American University of Paris; The American University of Paris)
    Abstract: This paper considers the role of asymmetric information in a political agency theory of autocratic economic policy-making. Within the context of a static game, we analyze the strategic interaction between a self-interested elite ruling class, who may extract rent ineciently through hidden regulations, and an imperfectly informed disenfranchised class, who may choose to revolt. In various models, we identify the Perfect Bayesian Equilibrium (PBE), which we describe in terms of the economy's level of development potential. One model has two-sided uncertainty and a cost of regulation. This model has a PBE such below a threshold development level the elite chose inecient regulation and above the threshold development level the elite chose the ecient policy. A further extension where the elite own assets allows for a voluntarily transition to democracy.
    Keywords: Political transition, Revolution, Asymmetric information, Perfect Bayesian equilibrium
    Date: 2012
  2. By: Flavio Menezes (School of Economics, The University of Queensland); Magnus Söderberg; Miguel Santolino
    Abstract: This paper investigates the review processes when customers have complained about conditions proposed by a monopolistic firm. This is accomplished by first developing a theoretical model that considers two possible types of regulators: one who only cares about her career and one who cares about both her career and consumer surplus. When the regulator is only concerned with her career, it is predicted that, under certain conditions, a larger number of decisions will be overturned by the appellate court in more complex cases than in less complex cases. The model also predicts that when the regulator cares about both her career and consumer surplus, less complex cases will be associated with more appeals by regulated firms, but fewer decisions will be overturned and prices will be lower. As the complexity of cases increases, the model predicts a switch to more appeals by consumers, more decisions being overturned and higher prices on average. Our empirical analysis based on 409 customer complaints from the Swedish electricity market largely confirms these theory predictions. As an empirical innovation we suggest that the level of bureaucratic effort is measured as the positive disturbance term in a stochastic frontier model.
    Date: 2012–11–29
  3. By: Fabian Duarte; Justine S. Hastings
    Abstract: This paper brings new evidence from the privatized social security system in Mexico, offering insight into investment behavior and the efficacy of government “nudges” in the context of profit maximizing firms. We use administrative data from the social security system surrounding the government adoption of a new official fee index aimed at simplifying fees and increasing price sensitivity of investors. The fee index combined load and management fees in a particular way, implying that choosing a lower index firm could lead many workers to choose a higher-cost fund for them. We find that before the index, investors of all backgrounds paid little attention to fees when choosing fund managers. Post-policy intervention, investors heavily weighted the fee index regardless of whether doing so caused them to choose a higher-cost fund. In contrast to investors, we find that firms responded optimally to the changes in demand induced by government policy, restructuring rather than lowering their fees to minimize the index. The strategic response erased gains to consumers from increased price sensitivity and redistributed management fees from high-income to low-income segments of the market. We conclude that regulations and policies aimed at aiding consumer decision-making also need to incorporate firm incentives to be effective.
    JEL: D14 D18 G11 G23 L20 L21 L51
    Date: 2012–11
  4. By: Gireesh Shrimali; Steffen Jenner; Felix Groba; Gabriel Chan; Joe Indvik
    Abstract: Renewable portfolio standards (RPS) are the most popular U.S. state-level policies for promoting deployment of renewable electricity (RES-E). While several econometric studies have estimated the effect of RPS on in-state RES-E deployment, results are contradictory. We reconcile these studies and move toward a definitive answer to the question of RPS effectiveness. We conduct an analysis using time series cross sectional regressions - including the most nuanced controls for policy design features to date - and nonparametric matching analysis. We find that higher RPS stringency does not necessarily drive more RES-E deployment. We examine several RPS design features and market characteristics (including REC unbundling, RPS in neighboring states, out-of-state renewable energy purchases) that may explain the gap between effective and ineffective policies. We also investigate other RES-E policies and technology-specific effects. Ultimately, we show that RPS effectiveness is largely explained by a combination of policy design, market context, and inter-state trading effects.
    Keywords: Renewable energy, Renewable portfolio standards, Panel data models, Matching analysis
    JEL: C23 H23 Q42 Q48
    Date: 2012
  5. By: Hélène Le Cadre (CMA - Centre de Mathématiques Appliquées - Mines ParisTech); David Mercier (CEA, LIST - CEA)
    Abstract: In this article, we consider houses belonging to an eco-neighborhood which inhabitants have the capacity to optimize dynamically the energy demand and the energy storage level so as to maximize their utility. The inhabitants' preferences are characterized by their sensitivity toward comfort versus price, the optimal expected temperature in the house, thermal loss and heating efficiency of their house. At his level, the eco-neighborhood manager shares the resource produced by the eco-neighborhood according to two schemes: an equal allocation between the houses and a priority based one. The problem is modeled as a stochastic game and solved using stochastic dynamic programming. We simulate the energy consumption of the eco-neighborhood under various pricing mechanisms: flat rate, peak and off-peak hour, blue/white/red day, peak day clearing and a dynamic update of the price based on the consumption of the eco-neighborhood. We observe that economic incentives for houses to store energy depends deeply on the implemented pricing mechanism and on the homogeneity in the houses' characteristics. Furthermore, when prices are based on the consumption of the eco-neighborhood, storage appears as a compensation for the errors made by the service provider in the prediction of the consumption of the eco-neighborhood.
    Keywords: Eco-Neighborhood; Planning; Stochastic game theory; Energy storage; Pricing
    Date: 2012–10–31
  6. By: Cagatay Bircan (EBRD); David Hauner (IMF); Alessandro Prati (IMF)
    Abstract: We use a new dataset of de jure measures of trade, capital account, product market and domestic financial regulation for 91 countries from 1973 to 2005 to test Rajan and Zingales’s (2003) interest group theory of financial development. In line with the theory, we find strong evidence that trade liberalisation is a leading indicator of domestic financial liberalisation. This result is robust to the use of different data frequencies, estimation methods and a check for non-linear effects. However, in contrast to the theory, we do not find consistent evidence of an effect of capital account liberalisation on financial development.
    Keywords: Financial development, financial liberalisation, trade liberalisation
    JEL: F13 G00 O16
    Date: 2012–10
  7. By: A. Mitchell Polinsky; Steven Shavell
    Abstract: A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages.
    JEL: K13 K41
    Date: 2012–12
  8. By: Corrado Di Maria; Ian A. Lange; Edwin van der Werf
    Abstract: This paper presents the first empirical test of the green paradox hypothesis, according to which well-intended but imperfectly implemented policies may lead to detrimental environmental outcomes due to supply side responses. We use the introduction of the Acid Rain Program in the U.S. as a case study. The theory predicts that owners of coal deposits, expecting future sales to decline, would supply more of their resource between the announcement of the Acid Rain Program and its implementation; moreover, the incentive to increase supply would be stronger for owners of high-sulfur coal. This would, all else equal, induce an increase in sulfur dioxide emissions. Using data on prices, heat input and sulfur content of coal delivered to U.S. power plants, we find strong evidence of a price decrease, some indication that the amount of coal used might have increased, and no evidence that the announcement of the Acid Rain Program lead the use of higher sulfur coal. Overall, our evidence suggests that while the mechanism indicated by the theory might be at work, market conditions and concurrent regulation prevented a green paradox from arising. These results have implications for the design of climate policies.
    Keywords: Green Paradox, implementation lags, announcement effects, climate policy, acid rain policy
    JEL: Q31 Q38 Q53 Q54 Q58
    Date: 2012

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