nep-reg New Economics Papers
on Regulation
Issue of 2022‒04‒11
seventeen papers chosen by
Christopher Decker
Oxford University

  1. Barriers to Real-Time Electricity Pricing: Evidence From New Zealand By Charles Pébereau; Kevin Remmy
  2. Equilibrium in Two-Sided Markets for Payments: Consumer Awareness and the Welfare Cost of the Interchange Fee By Kim Huynh; Gradon Nicholls; Oleksandr Shcherbakov
  3. Strengthened Regulations for Digital Platform Businesses in China: Focusing on the Anti-Monopoly Law (Japanese) By KAWASHIMA Fujio
  4. The organizational roots of market design failure structural abstraction, the limits of hierarchy, and the California energy crisis of 2000/01 By Rilinger, Georg
  5. Stablecoins and Central Bank Digital Currencies: Policy and Regulatory Challenges By Barry Eichengreen; Ganesh Viswanath-Natraj
  6. Entrepreneurship and Regulatory Voids: The Case of Ridesharing By Deerfield, Amanda; Elert, Niklas
  7. Ratio Working Paper No. 353: From free competition to fair competition on the European internal market By Karlson, Nils; Herold, Theo; Dalbard, Karl
  8. A general equilibrium analysis of the economic impact of the post-2006 EU regulation in the services sector By Javier Barbero; Manol Bengyuzov; Martin Christensen; Andrea Conte; Simone Salotti; Aleksei Trofimov
  9. Behaviour Change Interventions in the Water Sector By Jui Kamat; Rose Meleady; Theodore Turocy; Vittoria Danino
  10. Vertical Bargaining and Obfuscation By Edona Reshidi
  11. Artificial Intelligence and Auction Design By Martino Banchio; Andrzej Skrzypacz
  12. Multi-criteria decision analysis for benefit-risk analysis by national regulatory authorities By Chisholm, Orin; Sharry, Patrick; Phillips, Lawrence
  13. The era of platforms and the development of data marketplaces in a free competition environment By Da Silva, Filipe; Núñez Reyes, Georgina
  14. Are managers paid for market power? By Renjie Bao; Jan de Loecker; Jan Eeckhout
  15. Monopsony in the U.S. Labor Market By Chen Yeh; Claudia Macaluso; Brah J. Hershbein
  16. Open Banking: Credit Market Competition When Borrowers Own the Data By Zhiguo He; Jing Huang; Jidong Zhou
  17. Europa kann die Abhängigkeit von Russlands Gaslieferungen durch Diversifikation und Energiesparen senken By Franziska Holz; Claudia Kemfert; Hella Engerer; Robin Sogalla

  1. By: Charles Pébereau; Kevin Remmy
    Abstract: This paper studies the introduction of real-time electricity pricing in the New Zealand residential retail market to understand why its market share remained below 1.25%. We use rich panel data of all retail switches between 2014 and 2018 and an unexpected wholesale price spike to study adoption and attrition. Exploiting the staggered roll-out of real-time pricing in different locations we find that attrition decreases with experience. We also find that prospective adopters are present biased. The combination of these findings explains why adoption stalled and shows that wholesale price spikes pose a serious threat to widespread adoption of real-time pricing.
    Keywords: energy, time-varying pricing, consumer behavior, learning
    JEL: D12 D83 D91 L52 L81 L94 Q41
    Date: 2022–03
  2. By: Kim Huynh; Gradon Nicholls; Oleksandr Shcherbakov
    Abstract: The market for payments is an important two-sided one, where consumers benefit from increased merchant acceptance of payment cards and vice versa. The dependence between the decisions that are made on each side of the market results in various network externalities that are often discussed but rarely quantified. We construct and estimate a structural two-stage model of equilibrium in a market for payments in order to quantify the network externalities and identify the main determinants of consumer and merchant decisions. The estimation results suggest significant heterogeneity in consumer adoption costs and benefits. We discuss the critical characteristics that determine which payment instrument is used at the point of sale. Our counterfactual simulation measures the degree of excessive intermediation by credit card providers.
    Keywords: Bank notes; Digital currencies and fintech; Econometric and statistical methods; Financial services
    JEL: C51 D12 E42 L14
    Date: 2022–03
  3. By: KAWASHIMA Fujio
    Abstract: Since December 2020 when the Central Political Bureau of the Communist Party of China and the Central Economic Work Council adopted a priority policy to ‘strengthen the Anti-Monopoly and prevent disorderly expansion of capital,’ regulation based on the Anti-Monopoly Law has actually been strengthened, particularly against digital platform businesses such as Alibaba and Tencent, who had been regarded as operating outside of the scope of its regulation and thus as ‘sanctuary’ businesses. This discussion paper firstly examines the background behind the strengthening of its regulation and secondly introduces and analyzes concrete cases of the application of the Anti-Monopoly Law regulation against digital platform business. Thirdly, it introduces the trends in the application of the regulations of other laws such as the Network Security Law to such business and clarifies the trends and characteristics related to the Antimonopoly Law regulations in comparison with other regulations. Towards the design and creation of multilateral rules on digital trade, this discussion paper's examination has practical implications as a foundational work, describing the state-of-play of relevant regulations in China, which can significantly affect the future direction of said rules.
    Date: 2021–03
  4. By: Rilinger, Georg
    Abstract: Economic sociologists have rarely studied organizational reasons why market design processes fail. Drawing on the organizational literature on mistakes and accidents, the paper identifies such reasons for a fatal design decision during the creation of California's first electricity markets. Designers proposed weak oversight structures even though their models called for active and permanent regulatory control. Sellers like Enron could therefore manipulate the market without fear of detection, prolonging the western energy crisis. A process of 'structural abstraction' explains this mistake. Designers were split into three groups that worked in different divisions and relied on local frames to understand the oversight requirements. Each group missed information the others were aware of and arrived at the conclusion that minimal oversight would suffice. Higher levels of the hierarchy should have discovered and resolved these discrepancies. However, these levels considered the issue at a higher level of abstraction. Such structural abstraction made room for ambiguities that obscured the local disagreements.
    Keywords: California energy crisis,cognition and hierarchy,economic sociology,market design failure,organizational mistakes,Marktdesign,Fehler und Unfälle in Organisationen,Hierarchie und Kognition,kalifornische Energiekrise,Wirtschaftssoziologie
    Date: 2021
  5. By: Barry Eichengreen; Ganesh Viswanath-Natraj
    Abstract: Stablecoins and central bank digital currencies are on the horizon in Asia, and in some cases have already arrived. This paper provides new analysis and a critique of the use case for both forms of digital currency. It provides time-varying estimates of devaluation risk for the leading stablecoin, Tether, using data from the futures market. It describes the formidable obstacles to widespread use of central bank digital currencies in cross-border transactions, the context in which their utility is arguably greatest. The bottom line is that significant uncertainties continue to dog the region's digital currency initiatives.
    Date: 2022–02
  6. By: Deerfield, Amanda (Economics Department); Elert, Niklas (Research Institute of Industrial Economics (IFN))
    Abstract: Formal institutions, e.g., regulations, are considered crucial determinants of entrepreneurship, but what enables regulatory change when there is a regulatory void, meaning entrepreneurship clashes with existing regulations? Drawing on public choice theory, we hypothesize that regulatory freedom facilitates the introduction of legislation to fill such voids. We test this hypothesis using unique data documenting the time for ridesharing to become legalized at the state level across the United States following its local (and often illegal) rollout. Results suggest states with greater regulatory freedom passed ridesharing legislation quicker, highlighting an underappreciated way that extant regulatory freedom facilitates the accommodation of entrepreneurship.
    Keywords: Entrepreneurship; Innovation; Regulation; Institutional change; Institutional voids; Institutional entrepreneurship; Sharing economy; Economic freedom; Survival analysis
    JEL: C21 O31 R49
    Date: 2022–03–24
  7. By: Karlson, Nils (The Ratio Institute); Herold, Theo (The Ratio Institute); Dalbard, Karl (The Ratio Institute)
    Abstract: This paper investigates whether an increased use and reinterpretation of what has been called “fair competition” has occurred at the expense of “free competition” among the central institutions of the European Union. We are also interested in assessing how frequently these terms have been used by the various EU institutions over time. We have empirically examined this through a quantitative survey of more than 12,000 public documents, out of totally 242 000 documents containing 630 million words, in the EUR-lex database over the last 50 years, from 1970 to 2020. Our conclusion is that the emphasis of the common policies in the EU is likely to have shifted from free competition and an open market economy to "fair competition" in the sense of a level playing field, in official EU documents, such as treaties, EU acts institutions, preparatory documents relating to EU directives and recommendations including motions and resolutions, case law and more. The European Commission has been a driving force in this development, followed closely by the European Parliament and subsequently by the Council of Ministers. This change entails a risk that the regulation of the European internal market has shifted so that the dynamics of the internal market and thus the EU's competitiveness will weaken. The change also entails a centralization of decisions at EU level at the expense of the Member States.
    Keywords: European Union; free competition; fair competition; level playing field; regulation
    JEL: F13 F15 F42 F55 G18 H71
    Date: 2022–03–24
  8. By: Javier Barbero (European Commission - JRC); Manol Bengyuzov (European Commission - DG GROW); Martin Christensen (European Commission - JRC); Andrea Conte (European Commission - JRC); Simone Salotti (European Commission - JRC); Aleksei Trofimov (European Commission - DG GROW)
    Abstract: This study uses both econometric and modelling techniques to quantify the macroeconomic impact of regulatory reforms removing barriers in the European Single Market for services that have taken place in the European Union between 2006 and 2017. It also provides scenario analyses of the impact of a number of hypothetical additional reforms aimed at further reducing regulatory restrictions. The results of the modelling simulations indicate that the regulatory reforms implemented between 2006 and 2017 will result in discounted cumulative gains of 2.1% of GDP by the year 2027. Furthermore, ambitious additional reforms from 2017 onwards would generate an additional growth potential of 2.5% of GDP by 2027. Combining the realised and potential gains would result in a cumulative gain in GDP of 4.65% and a rise in employment of more than 300,000 full time equivalents by 2027. More conservative hypotheses on the additional reforms from 2017 onwards would lead to a GDP cumulative gain of 3.22% by 2027.
    Keywords: rhomolo, region, growth, Services regulation, general equilibrium modelling, Single Market
    JEL: C68 R13
    Date: 2022–02
  9. By: Jui Kamat (School of Psychology, University of East Anglia, Norwich); Rose Meleady (School of Psychology, University of East Anglia, Norwich); Theodore Turocy (School of Economics and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich); Vittoria Danino (Anglian Centre for Water Studies, Anglian Water)
    Abstract: The water sector is increasingly making use of behaviour change interventions across a wide range of applications. These interventions can be alternatives to traditional infrastructure or end of pipe solutions by mitigating problems created by human behaviours. This article reviews 60 behaviour change interventions carried out during AMP6, addressing behaviours related to water use, water recycling and those focusing on maintaining broader environmental sustainability. Based on this review, we identify opportunities for strengthening the development processes in the sector for behaviour change interventions.
    Keywords: Behaviour, behaviour change, water consumption, water recycling, sewerage, sustainability, non-household behaviours, intervention design, intervention implementation, intervention evaluation
    Date: 2022–04
  10. By: Edona Reshidi
    Abstract: Manufacturers often engage in practices that impede consumer search. Examples include proliferating product varieties, imposing vertical informational restraints, and banning online sales to make it more difficult for consumers to compare prices. This paper models vertical bargaining over wholesale prices and obfuscation levels and finds that obfuscation arises in equilibrium whenever retailers have some bargaining power. Once the bargaining power rests with the manufacturer, the equilibrium involves no obfuscation. The final consumers, however, are worse off compared with settings when retailers have all the bargaining power. We show that in vertical markets, policies that impose caps on obfuscation may induce higher wholesale and retail prices. Instead, we propose caps on wholesale prices as an effective consumer protection policy.
    Keywords: Economic models; Market structure and pricing
    JEL: C70 L42 L13
    Date: 2022–03
  11. By: Martino Banchio; Andrzej Skrzypacz
    Abstract: Motivated by online advertising auctions, we study auction design in repeated auctions played by simple Artificial Intelligence algorithms (Q-learning). We find that first-price auctions with no additional feedback lead to tacit-collusive outcomes (bids lower than values), while second-price auctions do not. We show that the difference is driven by the incentive in first-price auctions to outbid opponents by just one bid increment. This facilitates re-coordination on low bids after a phase of experimentation. We also show that providing information about lowest bid to win, as introduced by Google at the time of switch to first-price auctions, increases competitiveness of auctions.
    Date: 2022–02
  12. By: Chisholm, Orin; Sharry, Patrick; Phillips, Lawrence
    Abstract: The approval process for pharmaceuticals has always included a consideration of the trade-offs between benefits and risks. Until recently, these trade-offs have been made in panel discussions without using a decision model to explicitly consider what these trade-offs might be. Recently, the EMA and the FDA have embraced Multi-Criteria Decision Analysis (MCDA) as a methodology for making approval decisions. MCDA offers an approach for improving the quality of these decisions and, in particular, by using quantitative and qualitative data in a structured decision model to make trade-offs in a logical, transparent and auditable way. This paper will review the recent use of MCDA by the FDA and EMA and recommend its wider adoption by other National Regulatory Authorities (NRAs) and the pharmaceutical industry.
    Keywords: benefit-risk; decision analysis; drug approval process; regulatory affairs; regulatory science
    JEL: R14 J01
    Date: 2022–01–12
  13. By: Da Silva, Filipe; Núñez Reyes, Georgina
    Abstract: The data economy has presented challenges that go far beyond the scope of traditional regulatory frameworks and competition policies. The role of data, digitalization and the dynamic those factors have imposed on the economy have created significant challenges that the regulatory authorities must confront. At the heart of the debate is the impact of digitally-enabled business models and the digital platforms themselves. In this context, many enterprises, particularly small ones, are facing unfair competition from digitally native companies. The digitalization of the economy, the digitally-enabled business model and the intensive use of data are generating opportunities for enterprises and governments. The creation of data marketplaces and the elimination of barriers to the free flow of data have the potential to improve innovation and productivity in the economy. From a fiscal perspective, understanding the role of data and pricing them are therefore essential to closing gaps and levelling the playing field. Moreover, it is primarily start-ups and disruptor companies that benefit from the pricing of databases.The data economy has presented challenges that go far beyond the scope of traditional regulatory frameworks and competition policies. The role of data, digitalization and the dynamic those factors have imposed on the economy have created significant challenges that the regulatory authorities must confront. At the heart of the debate is the impact of digitally-enabled business models and the digital platforms themselves. In this context, many enterprises, particularly small ones, are facing unfair competition from digitally native companies. The digitalization of the economy, the digitally-enabled business model and the intensive use of data are generating opportunities for enterprises and governments. The creation of data marketplaces and the elimination of barriers to the free flow of data have the potential to improve innovation and productivity in the economy. From a fiscal perspective, understanding the role of data and pricing them are therefore essential to closing gaps and levelling the playing field. Moreover, it is primarily start-ups and disruptor companies that benefit from the pricing of databases.
    Date: 2022–03–04
  14. By: Renjie Bao; Jan de Loecker; Jan Eeckhout
    Abstract: To answer the question whether managers are paid for market power, we propose a theory of executive compensation in an economy where firms have market power, and the market for managers is competitive. We identify two distinct channels that contribute to manager pay in the model: market power and firm size. Both increase the profitability of the firm, which makes managers more valuable as it increases their marginal product. Using data on executive compensation from Compustat, we quantitatively analyze how market power affects Manager Pay and how it changes over time. We attribute on average 45.8% of Manager Pay to market power, from 38.0% in 1994 to 48.8% in 2019. Over this period, market power accounts for 57.8% of growth. We also find there is a lot of heterogeneity within the distribution of managers. For the top managers, 80.3% of their pay in 2019 is due to market power. Top managers are hired disproportionately by firms with market power, and they get rewarded for it, increasingly so.
    Keywords: market power, manager pay, executive compensation, markups, reallocation, superstars
    Date: 2022–04
  15. By: Chen Yeh (Federal Reserve Bank of Richmond); Claudia Macaluso (Federal Reserve Bank of Richmond); Brah J. Hershbein (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper quantifies the extent to which the U.S. manufacturing labor market is characterized by employer market power and how such market power has changed over time. We find that the vast majority of U.S. manufacturing plants operate in a monopsonistic environment and, at least since the early 2000s, the labor market in U.S. manufacturing has become more monopsonistic. To reach this conclusion, we exploit rich administrative data for U.S. manufacturers and estimate plant-level markdowns—the ratio between a plant’s marginal revenue product of labor and its wage. In a competitive labor market, markdowns would be equal to unity. Instead, we find substantial deviations from perfect competition, as markdowns average 1.53. This result implies that a worker employed at the average manufacturing plant earns 65 cents on each dollar generated on the margin. To investigate long-term trends in employer market power, we propose a novel measure for the aggregate markdown that is consistent with aggregate wedges and also incorporates the local nature of labor markets. We find that the aggregate markdown decreased between the late 1970s and the early 2000s, but has been sharply increasing since.
    Keywords: Monopsony, labor market power, markdowns, secular trends
    JEL: E2 J2 J3 J42
    Date: 2022–03
  16. By: Zhiguo He (University of Chicago, Booth School of Business); Jing Huang (University of Chicago, Booth School of Business); Jidong Zhou (Cowles Foundation, Yale University)
    Abstract: Open banking facilitates data sharing consented to by customers who generate the data, with the regulatory goal of promoting competition between traditional banks and challenger fintech entrants. We study lending market competition when sharing banks’ customer transaction data enables better borrower screening. Open banking can make the entire financial industry better off yet leave all borrowers worse off, even if borrowers have the control of whether to share their banking data. We highlight the importance of the equilibrium credit quality inference from borrowers’ endogenous sign-up decisions. We also study extensions with fintech affinities and data sharing on borrower preferences.
    Keywords: Open banking, Data sharing, Banking competition, Digital economy, Winner's curse, Privacy
    JEL: G21 L13 L52 O33 O36
  17. By: Franziska Holz; Claudia Kemfert; Hella Engerer; Robin Sogalla
    Abstract: Die Erdgasversorgung der Europäischen Union stützte sich bisher zu einem großen Teil auf Lieferungen aus Russland. In Deutschland, Italien, Österreich und den meisten Ländern Ost- und Mitteleuropas war diese Abhängigkeit besonders hoch. Allerdings spielt Erdgas nicht in allen diesen Volkswirtschaften eine gleich große Rolle. Mit dem völkerrechtswidrigen Krieg Russlands in der Ukraine stellen sich die dringlichen Fragen, wie diese Abhängigkeit reduziert werden kann und was im Fall einer Lieferunterbrechung von russischen Erdgasexporten passieren würde. Dieser Bericht skizziert die Ausgangslage und diskutiert kurzfristige Anpassungsreaktionen. Modellrechnungen zeigen, dass die Europäische Union bei einem Komplettausfall russischer Erdgaslieferungen einen Großteil kompensieren kann. Kurzfristig stehen die effiziente Bewirtschaftung bestehender Infrastruktur, die Diversifizierung der Bezugsverträge sowie Maßnahmen zur Nachfrageanpassung im Mittelpunkt. Mittelfristig sollte der Ausbau erneuerbarer Energien im Kontext des EU Green Deal beschleunigt werden, inklusive eines zeitnahen Ausstiegs aus der Nutzung fossilen Erdgases, der die europäische Energiesicherheit weiter stärken würde.
    Date: 2022

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