nep-reg New Economics Papers
on Regulation
Issue of 2022‒10‒24
eighteen papers chosen by
Christopher Decker
Oxford University

  1. Corrective regulation with imperfect instruments By Dávila, Eduardo; Walther, Ansgar
  2. The U.S. Manufacturing Sector’s Response to Higher Electricity Prices: Evidence from State-Level Renewable Portfolio Standards By Ann Wolverton; Ronald Shadbegian; Wayne B. Gray
  3. Powering Europe with North Sea Offshore Wind: The Impact of Hydrogen Investments on Grid Infrastructure and Power Prices By Goran Durakovic; Pedro Crespo del Granado; Asgeir Tomasgard
  4. Exploring effects of competitive tender for users in the regional railway market: evidence from Europe By Florent Laroche; Ayana Lamatkhanova
  5. Economies of scale versus the costs of bundling in the procurement of highway pavement replacement By Ridderstedt, Ivan; Nilsson, Jan-Eric
  6. Green growth and net zero policy in the UK: some conceptual and measurement issues. By Ajayi, V.; Pollitt, M .G.
  7. M&A and Early Investment Decisions by Digital Platforms By Zelda Brutti; Luis Rojas
  8. Goodbye monopoly: the effect of open access passenger rail competition on price and frequency in France on the High-Speed Paris-Lyon Line By Florent Laroche
  9. Enabling A Competitive Mobile Sector in Emerging Markets Through the Development of Tower Companies By Georges Vivien Houngbonon; Carlo Maria Rossotto; Davide Strusani
  10. The Effect of Second Generation Rent Controls: New Evidence from Catalonia By Joan Monràs; José García-Montalvo
  11. The Sociology of Cartels By Justus Haucap; Christina Heldman
  12. Cournot–Bertrand comparison under common ownership in a mixed oligopoly By Xu, Lili; Zhang, Yidan; Matsumura, Toshihiro
  13. Central Bank Digital Currency: Financial Inclusion vs. Disintermediation By Jeremie Banet; Lucie Lebeau
  14. Should organizing premier-level European football be a monopoly? And who should run it? - An economists' perspective By Budzinski, Oliver; Feddersen, Arne
  15. Foreclosure and tunneling with partial vertical ownership By Hunold, Matthias; Petrishcheva, Vasilisa
  16. Fixing Markets, Not Prices By World Bank
  17. Governance of Retail Payment Systems By World Bank
  18. Consumer Risks in Fintech By World Bank

  1. By: Dávila, Eduardo; Walther, Ansgar
    Abstract: This paper studies optimal second-best corrective regulation, when some agents/activities cannot be perfectly regulated. We show that policy elasticities and Pigouvian wedges are sufficient statistics to characterize the marginal welfare impact of regulatory policies in a large class of environments. We show that a subset of policy elasticities, leakage elasticities, determine optimal second-best policy, and characterize the marginal value of relaxing regulatory constraints. We apply our results to scenarios with unregulated agents/activities, uniform regulation across agents/activities, and costly regulation. We illustrate our results in applications to financial regulation with environmental externalities, shadow banking, behavioral distortions, asset substitution, and fire sales. JEL Classification: H23, Q58, G28, D62
    Keywords: corrective regulation, environmental externalities, financial regulation, leakage elasticities, Pigouvian taxation, policy elasticities, regulatory arbitrage, second-best policy
    Date: 2022–09
  2. By: Ann Wolverton; Ronald Shadbegian; Wayne B. Gray
    Abstract: While several papers examine the effects of renewable portfolio standards (RPS) on electricity prices, they mainly rely on state-level data and there has been little research on how RPS policies affect manufacturing activity via their effect on electricity prices. Using plant-level data for the entire U.S. manufacturing sector and all electric utilities from 1992 – 2015, we jointly estimate the effect of RPS adoption and stringency on plant-level electricity prices and production decisions. To ensure that our results are not sensitive to possible pre-existing differences across manufacturing plants in RPS and non-RPS states, we implement coarsened exact covariate matching. Our results suggest that electricity prices for plants in RPS states averaged about 2% higher than in non-RPS states, notably lower than prior estimates based on state-level data. In response to these higher electricity prices, we estimate that plant electricity usage declined by 1.2% for all plants and 1.8% for energy-intensive plants, broadly consistent with published estimates of the elasticity of electricity demand for industrial users. We find smaller declines in output, employment, and hours worked (relative to the decline in electricity use). Finally, several key RPS policy design features that vary substantially from state-to-state produce heterogeneous effects on plant-level electricity prices.
    JEL: Q48 Q52
    Date: 2022–09
  3. By: Goran Durakovic; Pedro Crespo del Granado; Asgeir Tomasgard
    Abstract: Hydrogen will be a central cross-sectoral energy carrier in the decarbonization of the European energy system. This paper investigates how a large-scale deployment of green hydrogen production affects the investments in transmission and generation towards 2060, analyzes the North Sea area with the main offshore wind projects, and assesses the development of an offshore energy hub. Results indicate that the hydrogen deployment has a tremendous impact on the grid development in Europe and in the North Sea. Findings indicate that total power generation capacity increases around 50%. The offshore energy hub acts mainly as a power transmission asset, leads to a reduction in total generation capacity, and is central to unlock the offshore wind potential in the North Sea. The effect of hydrogen deployment on power prices is multifaceted. In regions where power prices have typically been lower than elsewhere in Europe, it is observed that hydrogen increases the power price considerably. However, as hydrogen flexibility relieves stress in high-demand periods for the grid, power prices decrease in average for some countries. This suggests that while the deployment of green hydrogen will lead to a significant increase in power demand, power prices will not necessarily experience a large increase.
    Date: 2022–09
  4. By: Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique); Ayana Lamatkhanova (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The paper explores the effect of the competitive tender for users through prices and frequencies in the regional railway passenger market. The analysis is original by an extended perimeter to seven European countries (France, Germany, Italy, Netherlands, Sweden, Switzerland, UK) and a total of 103 routes mixing market open to competition by tendering with market still under monopoly. Data are cross sectional and have been selected for one day. The method is based on an econometric analysis (Sureg) developed for other modes (air, coach) but never yet applied to the rail market and its specificities in terms of competition. For the regional services where competition is "for the market", the competition is analyzed through a dummy as a threat to lose the tender. Intermodal competition is limited to the coach services (dummy) and carpooling services (dummy). Results show that the threat of intra-modal competition can increase price for users but have no significant effect on frequencies. The analysis country by country highlights a similar performance for Sweden and Switzerland in spite of high differences in terms of competition. It suggests that the ability to negotiate contracts of public authorities and political choices can be more determinant than potential competition. Finally, effect of intermodal competition are weak mainly because of a limited offer. Results show that the probability to find a carpooling service increases when prices of train are increasing.
    Keywords: market structure,competition,tender,regional train,Railway competition,Regional Economy,Tender offer regulation,Working Papers du LAET
    Date: 2022–03
  5. By: Ridderstedt, Ivan (Swedish National Road & Transport Research Institute (VTI)); Nilsson, Jan-Eric (Swedish National Road & Transport Research Institute (VTI))
    Abstract: Although most public procurements involve decisions concerning bundling there is only a limited body of empirical research guiding policy on this matter. In this paper, we examine the cost effects of pure bundling in the competitive tendering of highway pavement replacement with hot-mix asphalt. For this we use linear regression on data from a comprehensive sample of such contracts procured by the Swedish infrastructure manager (IM) during the period 2012–2015. We find that bundling affects the procurer’s cost in multiple and partly counteracting ways. Our results show that economies of scale are strong but diminishing and counteracted by costs of bundling and bundling related factors. Overall, the findings support Swedish IM’s current design of bundles but also suggest that most of the contracts are still inefficiently small. Whilst not perfectly generalizable to other markets, the findings provide some support the increased promotion and use of bundling of small-scaled road rehabilitation projects in the US. Two main implications of the results are that bundling policy should emphasize proximity and similarity rather than whether work is small-scale and that the scope for efficient bundling should be accounted for when optimizing the timing of pavement replacement.
    Keywords: Public procurement; Efficiency; Bundling; Grouping; Highway; Road work
    JEL: H57 R42 R48
    Date: 2022–10–07
  6. By: Ajayi, V.; Pollitt, M .G.
    Abstract: This paper discusses some of the fundamental issues related to the future growth of productivity under net zero climate change policies. The aim of the paper is to discuss just how challenging it will be for an advanced economy with a net zero target to grow total factor productivity. The paper proceeds as follows. We begin by discussing the concept of green growth and a green industrial revolution. The focus of economic development here is on growth with minimal environmental impact. We then relate the green economy to the circular economy. The circular economy emphasises reduced material consumption and increased material recycling. We then discuss GDP measurement and how this relates to productivity growth under climate policies. Finally, we use a worked example of the projected growth under net zero of the electricity sector in Great Britain to show just how challenging raising even maintaining the level of TFP will be in that sector in the years out to 2050.
    Keywords: Green growth, net zero, circular economy, future energy scenarios, productivity.
    JEL: D24 O44 Q53 Q54
    Date: 2022–10–05
  7. By: Zelda Brutti; Luis Rojas
    Abstract: We propose an original theoretical framework that models early investment decisions of digital platform startups and use it to study how merger and acquisition policy affects consumer welfare by shaping such decisions. We formalize the investment options faced by digital platforms into a dual margin: investment in ‘customer engagement technology’, directed towards expanding the user base and in ‘intermediation technology’, directed towards lowering operational costs. Sinergies through technological transfer and increased investment incentives in customer engagement explain consumer welfare improvements in the case of M&As occurring between platforms with disjoint user bases. On the other hand, lower competition erodes consumer welfare in the case of allowing M&As between platforms with overlapping user bases. We conclude that M&A policy guidance should depend on the relationship between the incumbent’s and startup’s target users and on the ability of the startup to catch up with the incumbent.
    Keywords: digital platforms, mergers and acquisitions, investment
    JEL: L4 L81 O3 D25
    Date: 2021–12
  8. By: Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Paris-Lyon is the busiest High-Speed Line in Europe and has been open to open access competition since 18 December 2021. The purpose of this article is to explore the first effects on the price and frequency of competition between the Italian company Trenitalia and the French incumbent SNCF. The analysis is based on a large database (n = 971) collected from September 2019 to July 2022. The main challenge is to isolate the COVID-19 pandemic effect from the competition. A similar route without competition (Paris-Bordeaux) was selected to control the effects. The method relies on a descriptive analysis with an original dynamic timetable approach in the discussion. The results highlight an increase of frequency by 5% and a decrease in price by 10%. The prices charged by the newcomer are lower than those of the incumbent (-30% to -40%) though without enough volume to change the global equilibrium. Although far from a big bang, the comparison with the control route suggests a positive effect on price that moderates the economic catch-up effect following the COVID-19 pandemic in an inflationary context. More specifically, SNCF appears relatively insensitive to competitive pressure from Trenitalia. It has not significantly changed its price since the new offer was introduced and has maintained its trains.
    Keywords: Open-access competition,price,frequency,France,regulation,railroads,Working Papers du LAET
    Date: 2022–09
  9. By: Georges Vivien Houngbonon; Carlo Maria Rossotto; Davide Strusani
    Keywords: Public Sector Development - Regulatory Regimes Information and Communication Technologies - ICT Legal and Regulatory Framework Information and Communication Technologies - ICT Policy and Strategies Information and Communication Technologies - Telecommunications Infrastructure
    Date: 2021–06
  10. By: Joan Monràs; José García-Montalvo
    Abstract: Catalonia enacted a second-generation rental cap policy in late September 2020. The policy affected some municipalities but not others and, within the former, the policy only affected the units with prices above a certain reference price. Using microdata on rental units, we analyze the effect of the policy on both rental prices and the composition of rental supply. We find that the policy led to a reduction in rental prices of approximately 5 percent. The policy also led to a decline in the overall supply of rental units and to a significant shift in the composition of units available in the market. Using variation from the policy change, we compute a rental housing supply elasticity of approximately 3.
    Keywords: rent control, reference price, housing supply, event study
    JEL: D4 R21 R28 R31
    Date: 2022–04
  11. By: Justus Haucap; Christina Heldman
    Abstract: Traditional economic theory of collusion assumed that cartels are inherently unstable, and yet some manage to operate for years or even decades. While the literature has presented several determinants of cartel stability, the vast majority focuses on firms as entities, even though cartels are typically formed between individuals who need to develop structures that allow them to establish trust and ensure cooperation. We analyze 15 German cartels, focusing on the individual participants, the communication and internal structures within the cartels as well as their breakup. Our results indicate that cartel members are highly homogeneous and often rely on existing networks within the industry. Most impressively, only two of the 156 individuals involved in these 15 cartels were female, suggesting that gender also plays a role for cartel formation. We further identify various forms of communication and divisions of responsibilities and show that leniency programs are a powerful tool in breaking up cartels. Based on these results we discuss implications for competition policy and further research.
    Keywords: cartels, collusion, social networks, trust, antitrust
    JEL: L41 K21 Z13
    Date: 2022
  12. By: Xu, Lili; Zhang, Yidan; Matsumura, Toshihiro
    Abstract: Price competition is more intense than quantity competition in private oligopolies, wherein all firms are profit maximizers. However, in mixed oligopolies where one state-owned public firm competes with profit-maximizing private firms, price competition may not provide tougher competition than quantity competition. In this study, we introduce common ownership, a distinct feature of recent financial markets, into a mixed oligopoly model and investigate how common ownership affects this ranking. We find that under common ownership, quantity competition is likely to be tougher than price competition. Moreover, we find that common ownership harms welfare regardless of competition mode. Common ownership enhances private firms’ profits under Bertrand competition while these may decline under Cournot competition.
    Keywords: Cournot model; Bertrand model; common ownership; mixed oligopoly
    JEL: D4 D43 H42 L13
    Date: 2022–09–20
  13. By: Jeremie Banet; Lucie Lebeau
    Abstract: An overlapping-generations model with income heterogeneity is developed to analyze the impact of introducing a Central Bank Digital Currency (CBDC) on financial inclusion, and its potential adverse effect on bank funding. We highlight the role of two design parameters: the fixed cost of CBDC usage and the interest rate it pays, and derive principles for maximum inclusion and for mitigating the inclusion-intermediation trade-off. Agents’ choice of money instrument is endogenously driven by income heterogeneity. Pre-CBDC, wealthier agents adopt deposits, while poorer agents adopt cash and remain unbanked. CBDCs with low fixed costs (and low interest rates) are adopted by cash holders and directly increase inclusion. CBDCs with high fixed costs (and high interest rates) are adopted by deposit holders and increase inclusion by raising deposit rates. The former allows for more favorable inclusion-intermediation trade-offs. We calibrate the model to match the U.S. income distribution and aggregate share of unbanked households. A CBDC 50% cheaper (30% more expensive) than bank deposits decreases financial exclusion by 93% (71%) without impacting intermediation. In comparison, making the deposit market perfectly competitive would only decrease exclusion by 45%.
    Keywords: central bank digital currency; financial inclusion; payments; monetary policy
    JEL: E42 E51 E58 G21
    Date: 2022–09–24
  14. By: Budzinski, Oliver; Feddersen, Arne
    Abstract: The controversy around the breakaway European Super League, set to conquer the UEFA Champions League, and the surrounding antitrust proceedings revive the academic discussion about the monopoly power of sport-internal governing bodies (like the UEFA), the justification for and limits of their powers, and potential abuses of their power. Against this background, we discuss how much monopoly is unavoidable in premier-level European football and how its powers can be limited and, thus, scope and incentives for power abuse may be reduced. We particularly find that championship management can be periodically assigned to third-parties (like the Super League organizers) by tender procedures, thus, creating a periodical competition for the market, fueling innovation incentives and strengthening the influence of fans' preferences.
    Keywords: sports economics,Super League,UEFA Champions League,monopoly,marketpower,sport associations,rival leagues
    JEL: D02 D42 D47 K21 L12 L30 L40 L83 Z20
    Date: 2022
  15. By: Hunold, Matthias; Petrishcheva, Vasilisa
    Abstract: We study the incentives of firms that hold partial vertical ownership to foreclose rivals. Compared to a full vertical merger, with partial ownership, a firm may obtain only part of the target's profit but may nevertheless be able to influence the target's strategy significantly. The target may be either a supplier or a customer, which opens the scope for either input foreclosure or customer foreclosure. We show that the incentives to foreclose can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations are specified.
    Keywords: Backward ownership,Entry deterrence,Foreclosure,Minority shareholdings,Partial ownership,Uniform pricing,Vertical integration
    JEL: G34 L22 L40
    Date: 2022
  16. By: World Bank
    Keywords: Law and Development - Corporate Law Private Sector Development - Competition Policy Private Sector Development - Corporate Governance Private Sector Development - Legal Regulation and Business Environment Private Sector Development - Private Sector Economics
    Date: 2021–06
  17. By: World Bank
    Keywords: Finance and Financial Sector Development - Financial Regulation & Supervision Finance and Financial Sector Development - Payment Systems & Infrastructure Private Sector Development - Corporate Governance Finance and Financial Sector Development - Non Bank Financial Institutions
    Date: 2021–06
  18. By: World Bank
    Keywords: Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - E-Finance and E-Security Finance and Financial Sector Development - Financial Regulation & Supervision Finance and Financial Sector Development - Microfinance
    Date: 2021–04

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