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on Regulation |
| By: | Agarwal, Sumit (National U of Singapore); Morais, Bernardo (Federal Reserve Board); Seru, Amit (Stanford U); Shue, Kelly (Yale U) |
| Abstract: | While reliance on human discretion is a pervasive feature of institutional design, human discretion can also introduce costly noise (Kahneman, Sibony, and Sunstein 2021). We evaluate the consequences, determinants, and trade-offs associated with discretion in high-stake decisions assessing bank safety and soundness. Using detailed data on the supervisory ratings of US banks, we find that professional bank examiners exercise significant personal discretion—their decisions deviate substantially from algorithmic benchmarks and can be predicted by examiner identities, holding bank fundamentals constant. Examiner discretion has a large and persistent causal impact on future bank capitalization and supply of credit, leading to volatility and uncertainty in bank outcomes, and a conservative anticipatory response by banks. We identify a novel source of noise: weights assigned to specific issues. Disagreement in ratings across examiners can be attributed to high average weight (50%) assigned to subjective assessment of banks’ management quality, as well as heterogeneity in weights attached to more objective issues such as capital adequacy. Replacing human discretion with a simple algorithm leads to worse predictions of bank health, while moderate limits on discretion can translate to more informative and less noisy predictions. |
| JEL: | G28 G40 |
| Date: | 2024–04 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:stabus:4180 |
| By: | Athey, Susan (Stanford U); Castillo, Juan Camilo (U of Pennsylvania); Chandar, Bharat (Stanford U) |
| Abstract: | The rise of marketplaces for goods and services has led to changes in the mechanisms used to ensure high quality. We analyze this phenomenon in the Uber market, where the system of pre-screening that prevailed in the taxi industry has been diminished in favor of (automated) quality measurement, reviews, and incentives. This shift allows greater flexibility in the workforce but its net effect on quality is unclear. Using telematics data as an objective quality outcome, we show that UberX drivers provide better quality than UberTaxi drivers, controlling for all observables of the ride. We then explore whether this difference is driven by incentives, nudges, and information. We show that riders’ preferences shape driving behavior. We also find that drivers respond to both user preferences and nudges, such as notifications when ratings fall below a threshold. Finally, we show that informing drivers about their past behavior increases quality, especially for low-performing drivers. |
| JEL: | D83 L91 O33 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:stabus:3894 |
| By: | Andrea Galeotti; Benjamin Golub; Sanjeev Goyal; Eduard Talam\`as; Omer Tamuz |
| Abstract: | A large differentiated oligopoly yields inefficient market equilibria. An authority with imprecise information about the primitives of the market aims to design tax/subsidy interventions that increase efficiency robustly, i.e., with high probability. We identify a condition on demand that guarantees the existence of such interventions, and we show how to construct them using noisy estimates of demand complementarities and substitutabilities across products. The analysis works by deriving a novel description of the incidence of market interventions in terms of spectral statistics of a Slutsky matrix. Our notion of recoverable structure ensures that parts of the spectrum that are useful for the design of interventions are statistically recoverable from noisy demand estimates. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.03026 |
| By: | Mills, Stuart; Whittle, Richard |
| Abstract: | The UK Behavioural Insights Team transformed nudging and behavioural economics from nascent ideas to key policy tools for the UK Coalition Government. This article argues that political economic circumstances significantly contributed to the success of this ‘nudge’ programme. The Global Financial Crisis (GFC) created a ‘contest of authority’ over dominant policy approaches. By framing the crisis as a crisis of rationality, behavioural perspectives gained political support. The GFC also saw that the UK Government (from 2010) adopt a programme of fiscal austerity. Nudging complemented this programme by suggesting effective policy could be made cheaply. Using various accounts of nudging in the UK from those involved in its development, we demonstrate the role of the country’s political economy in the behavioural turn. We conclude by reflecting on the role of behavioural insights today, given a political–economic landscape much changed since 2010. |
| Keywords: | austerity; behavioural economics; nudge; political economy |
| JEL: | D90 |
| Date: | 2024–10–25 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126042 |
| By: | Hatsor, Limor; Hashimzade, Nigar; Jelnov, Artyom |
| Abstract: | Recent antitrust regulations in several countries have granted exemptions for col- lusion aimed at achieving environmental goals. Firms can apply for exemptions if collusion helps to develop or to implement costly clean technology, particularly in sec- tors like renewable energy, where capital costs are high and economies of scale are significant. However, if the cost of the green transition is unknown to the competition regulator, firms might exploit the exemption by fixing prices higher than necessary. The regulator faces the decision of whether to permit collusion and whether to commission an investigation of potential price fixing, which incurs costs. We fully characterise the equilibria in this scenario that depend on the regulator’s belief about the high cost of green transition. If the belief is high enough, collusion will be allowed. We also identify conditions under which a regulator’s commitment to always investigate price fixing is preferable to making discretionary decisions. |
| Keywords: | policy; antitrust; collusion; environment |
| JEL: | F0 G38 K21 Q52 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122611 |
| By: | Doron Sayag (Department of Economics, Bar-Ilan University, Israel); Avichai Snir (Department of Economics, Bar-Ilan University, Israel); Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; ICEA; ISET, TSU; Rimini Centre for Economic Analysis) |
| Abstract: | We study Israel’s “price rounding regulation” of January 1, 2014, which outlawed non-0-ending prices, forcing retailers to round 9-ending prices, which in many stores comprised 60%+ of all prices. The regulation’s goals were to eliminate (1) the rounding tax—the extra amount consumers paid because of price rounding (which was necessitated by the abolition of low denomination coins), and (2) the inattention tax—the extra amount consumers paid the retailers because of their inattention to the prices’ rightmost digits. Using 4 different datasets, we assess the government’s success in achieving these goals, focusing on fast-moving consumer goods, a category of products strongly affected by the price rounding regulation. We focus on the response of the retailers to the price rounding regulation and find that although the government succeeded in eliminating the rounding tax, the bottom line is that shoppers end up paying more, not less, because of the regulation, underscoring, once again, Friedman’s (1975) warning that policies should be judged by their results, not by their intentions. |
| Keywords: | Price Rounding Regulation, Rounding Tax, Inattention Penalty, Round Prices, 9-Ending Prices, Just-Below Prices, Inflation |
| JEL: | E31 K00 K20 L11 L40 L51 M30 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:rim:rimwps:24-17 |
| By: | Antonella Bancalari (Institute for Fiscal Studies) |
| Date: | 2024–05–08 |
| URL: | https://d.repec.org/n?u=RePEc:ifs:ifsewp:24/18 |
| By: | OECD |
| Abstract: | What are the different elements of a food supply chain and how can government policy related to competition, including competition law enforcement, play a role to limit market failures? This paper considers several aspects of food supply chains and their relationship to competition. Specifically, it discusses how market failures or competition law may apply to supplies to and purchasing from farmers, to the storage and transport of food, to the standards for delivering and packing food products; as well as the distributor-to-retailer negotiation. It also explores the grocery chain buyer power and potential consequences. |
| Date: | 2024–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:319-en |
| By: | Demirer, Mert (MIT); Karaduman, Omer (Stanford U) |
| Abstract: | Using rich data on hourly physical productivity and thousands of ownership changes from U.S. power plants, we study the effects of acquisitions on efficiency and underlying mechanisms. We find a 2% average increase in efficiency for acquired plants, beginning five months after acquisitions. Efficiency gains rise to 5% under direct ownership changes, with no significant change when only parent ownership changes. Investigating the mechanisms, three-quarters of the efficiency gain is attributed to increased productive efficiency, while the rest comes from dynamic efficiency through changes in production allocation. Our evidence suggests that high-productivity firms buy underperforming assets from low-productivity firms and make them as productive as their existing assets through operational improvements. Finally, acquired plants improve their performance beyond efficiency by increasing output and reducing outages. |
| JEL: | G34 L22 L25 L40 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:stabus:4209 |
| By: | Gayle, Philip; Faheem, Adeel |
| Abstract: | The literature argues that Post and Hold (PH) laws facilitate tacit collusive price-setting behavior among suppliers of alcoholic beverages. Yet there is no explicit empirical test of this claim. We specify and estimate a structural model designed to identify the extent to which PH laws induce tacit collusive price-setting behavior among beer suppliers. Our estimates reveal evidence of PH law-induced collusive behavior that causes higher prices and lower consumption. Furthermore, we find that an alcohol content tax as a replacement for PH regulation yields the highest surplus to consumers compared to a sales tax or the PH regulation. |
| Keywords: | Post and Hold Regulation; Competitive Conduct; US Beer Industry; Externality; Corrective Tax Policy |
| JEL: | H21 H23 I18 K00 L13 L40 L66 |
| Date: | 2024–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122541 |
| By: | Righetti, Edoardo; Egenhofer, Christian |
| Abstract: | The European Union’s climate neutrality objective will require the progressive decarbonisation of the transport sector, including road. Targets and policies are lowering technology costs and accelerating the deployment of low-carbon vehicles. The rollout of a widespread and reliable refuelling and recharging infrastructure is a condition for these policies and technologies to succeed. In the context of the Alternative Fuels Infrastructure Regulation, the deployment of hydrogen refuelling stations is under discussion and soon to be agreed upon. Most studies predict a considerable number of hydrogen-fuelled vans and trucks, with demand for hydrogen-fuelled passenger vehicles continuing to be subject to debate. Current low market penetration of hydrogen-powered vehicles limits the profitability of the hydrogen refuelling infrastructure. Support mechanisms will be required to ensure stations’ profitability and sustain their deployment. Building on an analysis of the economics of hydrogen refuelling stations and an overview of support measures typically implemented in Europe and beyond in infrastructure development, this report focuses on the cost-effectiveness of instruments in a situation of initial low demand. It identifies mandates and availability payments as the most suitable instruments, allowing the mobilisation of private capital. |
| Date: | 2022–12 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:38567 |
| By: | Yassine Lefouili (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse); Leonardo Madio (Unipd - Università degli Studi di Padova = University of Padua); Ying Lei Toh (Federal Reserve Bank - Kansas City) |
| Abstract: | We analyze how a privacy regulation taking the form of a cap on information disclosure affects quality-enhancing innovation incentives by a monopolist--who derives revenues solely from disclosing user data to third parties--and consumer surplus. If the share of privacy-concerned users is sufficiently small, privacy regulation has a negative effect on innovation and may harm users. However, if the share of privacy-concerned users is sufficiently large, privacy regulation has a positive effect on innovation. In this case, there is no trade-off between privacy and innovation and users always benefit from privacy regulation. |
| Keywords: | Privacy Regulation, Data Disclosure, Innovation |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04774302 |
| By: | Maria Francesca Mercedes D. Grabador (School of Economics, University of the Philippines Diliman) |
| Abstract: | Water is critical not only to economic progress and sustainable development but most importantly, to human survival. Yet, the way water is valued suggests an inexhaustible supply, when the opposite is true. This paper examines if water rights in the Philippines are underpriced and looks at how these can be valued at full economic cost. It finds that water resources in the Philippines are essentially given no value since the administrative cost-recovery approach is used to determine fees for water permits and water charges. Moreover, through the analysis of different pricing models used in other countries’ water markets, this study also presents the core components of an economic pricing model for water rights. While the establishment of water markets may represent the first best solution to water scarcity, it is an ideal solution in an ideal setting; thus, second and third best solutions are also presented. The study concludes that while it is not possible to immediately price water rights at its full economic cost, it may be done gradually, starting with the adoption of volumetric pricing and strengthening the institutional capacity of the National Water Resources Board (NWRB). |
| Keywords: | water permits, water rights, water rights trading, water rights markets, economic pricing models forwater rights, water resource management, volumetric pricing |
| JEL: | Q21 Q25 Q28 O53 O57 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:phs:dpaper:202402 |