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on Regulation |
| By: | Yi Chen; Zhe Wang; Jing Zhou |
| Abstract: | We study how AI regulation affects firm valuation using the EU Artificial Intelligence Act, the world's first comprehensive AI framework. In an event study around the April 2021 proposal, we find firms combining deeper EU presence with faster AI hiring earned higher announcement returns, suggesting markets value “jurisdictional capital”—experience in the EU regulatory environment helps firms navigate the AI regulation. The effect is stronger for high-risk AI, for firms with stable and concentrated EU presence, or prior compliance experience, unexplained by size, foreign exposure, or lobbying. EU-embedded, AI-expanding firms increase within-firm EU revenue share when peers are less embedded. |
| Keywords: | AI regulation; event study; EU AI Act; jurisdictional capital |
| Date: | 2026–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/180 |
| By: | Maysam Rabbani; Ram Sewak Dubey |
| Abstract: | Hybrid platforms disadvantage third-party sellers through the platform fee and self-preferencing, and regulators have worried that constraining either instrument may intensify the other. We model a platform that chooses both instruments and find the opposite: single-instrument regulation is effective because the instruments are strategic complements, and regulating either instrument curbs the other. We also find that the two instruments achieve what monopolization achieves, higher prices and reduced consumer welfare, while passing every conventional antitrust test. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.02800 |
| By: | Seiya Hirano |
| Abstract: | Two-sided markets exhibiting network effects often face coordination problems, which may lead to an inefficient outcome where a lower-quality platform wins the market. Some users make collective decisions as a group, potentially affecting the choices of others. This paper analyzes the impact of group users on two-sided platform competition. We develop a model with two platforms: one with a quality advantage (the higher-quality platform) and the other with a network advantage due to its focality (the lowerquality platform), meaning that users expect others to join it when multiple equilibria exist. There are two types of users: individual users and group users. An individual user makes decisions independently, whereas group users make collective choices that can affect others’ decisions. Our main findings are as follows: First, the group affects individual users’ choices if its size is sufficiently large, meaning it is pivotal. However, even if the group is pivotal, it may join the lower-quality platform unless it is large enough. The group joins the higher-quality platform only when it is both pivotal and sufficiently large. Second, we examine how the group size affects surplus distribution. Increasing group size improves market efficiency but exacerbates the disparity in the surplus between the group users and individual users. Our results highlight the dual role of group users in platform competition: while they can enhance efficiency by steering the market toward the higher-quality platform, they may also contribute to imbalances in surplus distribution. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1320 |
| By: | Kevin A. Bryan; Joshua S. Gans |
| Abstract: | AI predicts; humans use its predictions to make decisions. These predictions are combined with human verification and analysis, queries to other statistical models, and so on. The economic value of an AI, therefore, depends on how it interacts with the surrounding decision environment. We describe the value of AI as part of this "composite experiment" where AI makes a coarse prediction of the state of the world, show what this means for optimal model training via a geometric argument, explain why optimal training can be discontinuous in economic variables, and study how heterogeneous users or monopoly model trainers affect these results. In particular, maximizing the unconditional accuracy of AI predictions is generally suboptimal. |
| JEL: | D81 D82 D83 O33 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35490 |
| By: | Alvaro Contreras (Boston University); Peter Eccles (Financial Conduct Authority); Paolo Siciliani (Bank of England) |
| Abstract: | Cloud outsourcing may alter competition in banking by allowing smaller competitors to access scalable digital infrastructure. This paper studies the effects of banks’ outsourcing agreements with Cloud Service Providers (CSPs) in the UK banking sector using proprietary bank-provider contract data. We find that CSP spending is associated with lower operating costs and higher deposits, with reduced-form effects concentrated among large institutions. We also find that increases in capital requirements are associated with higher CSP spending, consistent with large institutions using CSP adoption to reduce dependence on legacy IT systems, improve operational efficiency, and strengthen long-term franchise value. We then estimate a structural model of competition in the UK deposit market to quantify depositor-demand effects from CSPs. We find that the demand-side benefits of CSP adoption are substantially larger for small and medium banks and building societies. We use the model to conduct two counterfactual analyses. First, we simulate a scenario in which cloud outsourcing was restricted prior to its widespread adoption. The counterfactual implies higher market concentration, lower market shares for smaller institutions, and lower depositor welfare. Second, we analyse a reduction in capital requirements. While lower capital requirements directly increase welfare through funding-cost effects, they also reduce incentives to invest in CSP adoption, offsetting roughly 32% of the direct welfare gain. Our findings suggest that cloud outsourcing has partly reduced technological barriers to competition in banking markets. |
| Keywords: | Cloud outsourcing;bank competition;process innovation;financial regulation |
| JEL: | G21 G28 O31 D22 |
| Date: | 2026–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023540 |
| By: | Hafez Ghanem |
| Abstract: | Africa is facing a massive electricity deficit that is impacting its economic and social development, and its ability to catch up with the rest of the world. It is imperative that the continent increase its electricity production to connect the 600 million people who are currently without access and to improve the quality of service for the millions who are suffering from frequent blackouts and load-shedding. Economic development in the 21st century will crucially depend on the digital economy and on artificial intelligence (AI), and both are big consumers of electricity. The last decade has seen major advances in nuclear technology and the development of small modular reactors (SMRs). Recently the World Bank has changed its policy to allow it to finance nuclear energy projects in developing countries. This policy brief examines whether those developments are an opportunity for Africa. Are SMRs the solution to Africa’s electricity problem? The policy brief is divided into six sections. After this introduction, section 2 describes Africa’s electricity deficit and its impact on the continent’s development. Section 3 explains why Africa needs more mini grids. Section 4 describes the evolution of SMR technology. Section 5 compares the costs and benefits of nuclear energy using SMRs to the cost and benefit of renewables and of natural gas. Section 6 concludes by trying to answer the question of whether Africa should go full speed toward adopting SMR technology. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb37_26 |
| By: | Vivek Bhattacharya; Gastón Illanes; Avner A. Kreps; José D. Salas; David Stillerman |
| Abstract: | Prospective merger simulations are a commonly used tool in industrial organization and antitrust, but evidence about their accuracy and predictive ability is limited. We study 101 mergers in consumer packaged goods and compare the realizations of price changes with predictions from merger simulations. In our sample of consummated mergers, predicted price changes from merger simulations are typically larger than realized ones. Despite the overprediction, we find that full merger simulations are more effective than both structural presumptions and approximations of the merger effect at identifying mergers with large price changes. |
| JEL: | D43 K21 L13 L41 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35473 |
| By: | Isaac Mann; David M. Levinson (TransportLab, School of Civil Engineering, University of Sydney) |
| Abstract: | Standard transport appraisal treats fare regulation in isolation, ignoring how price signals reshape urban geography. We bridge regulatory practice and quantitative spatial economics by constructing a Quantitative Spatial Transport Model (QSTM) for Greater Sydney, endogenising household and firm locations in response to transport shocks. Our framework extends the canonical quantitative spatial model by endogenising commuter mode choice and internalising network externalities through road congestion and the Mohring effect. Evaluating three public transport pricing interventions, including zero-fare, flat-fare, and fare-cap policies, we find that free transit is welfare-suboptimal, driven largely by operator revenue losses. In our setting, distance-based fares provide a spatial price signal that helps internalise resource costs and discourage sprawl, a signal that uniform flat fares mute. The model demonstrates that allocative efficiency requires a higher user contribution, revealing that weekly fare caps function as implicit subsidies for long-distance commuters. Higher fares trigger a spatial reorganisation where residents centralise to minimise commuting costs and firms decentralise to access labour. Ultimately, efficient distance-based pricing promotes a compact residential form, encourages polycentric employment, and reduces operator resource costs. |
| Keywords: | Quantitative spatial models, Transport appraisal, Fare regulation, Agglomeration economies, Spatial general equilibrium, Urban economics |
| JEL: | R40 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:nex:wpaper:paper-2026-22 |
| By: | Vincent Abraham; Florian Ederer; Catarina Marvao |
| Abstract: | We provide the first empirical evidence that common ownership can facilitate explicit collusion. Our unique setting, the population of legal cartels in Sweden, lets us observe cartel formation, duration, and dissolution without the sample-selection bias that plagues studies of detected cartels. Combining hand-collected ownership data with the universe of registered cartels, we compute firm-pair profit weights (κ) that measure how much one firm internalizes a rival's profits. Higher profit weights are associated with a greater likelihood of cartel participation, predict future cartel involvement, and are linked to longer cartel duration. Firms also reduce their profit weights immediately after a cartel dissolves. However, this relationship is concentrated among pairs in which the firm that internalizes the rival firm's profits colludes while the rival does not. Common ownership therefore complements a firm’s own participation in explicit collusion but substitutes for cartel participation by the rival whose profits it internalizes. |
| JEL: | D43 G32 L21 L41 L43 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35565 |
| By: | Chirantan Chatterjee; Ying Fan; Debi Prasad Mohapatra |
| Abstract: | This paper studies how spillovers across complementary markets shape product variety and firm entry. We examine the Indian cell phone and wireless service markets during the 4G rollout and estimate a structural model of demand, pricing, carrier network expansion, and phone product choice. The estimation results support the economic forces through which complementarity generates spillovers. Counterfactual simulations show that banning budget Chinese phones slows 4G deployment by roughly five quarters and lowers consumer welfare without raising domestic firms' profits. Similarly, an unrestricted subsidy outperforms a domestic-only subsidy in expanding network coverage, increasing consumer welfare, and raising domestic firms' profits. |
| JEL: | F13 L13 L63 L96 O25 O33 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35522 |
| By: | Valentina Norambuena-Guzman; Cong Chen; Lang Tong; Timothy D. Mount |
| Abstract: | In a network with ramp-limited generators and inaccurate net-demand forecasts, practical rolling-window dispatch can drive locational marginal prices (LMPs) below generators' bid-in offers. In such cases, out-of-market (OOM) settlements are used to compensate generators and maintain dispatch-following incentives, but OOM can have negative consequences, including nontransparent real-time price signals, discriminatory compensation, and incentives for untruthful bidding. This paper presents an optimal uniform pricing rule that minimizes demand payments, eliminates OOM make-whole payments, preserves LMP-based congestion charges, and ensures revenue adequacy. We derive the proposed pricing rule in closed form and relate it to existing pricing schemes. Numerical comparisons demonstrate favorable generator profits and reduced price volatility. However, higher generator profits are accompanied by increased demand payments, reflecting the in-market, uniform allocation of ramping costs while preserving the LMP-based congestion charges widely used in real-time market settlements. The numerical results also show that, under LMP with OOM settlement, a price-taking generator has an incentive to inflate its offer, whereas this incentive is absent under the proposed pricing rule within the tested bid range. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.00541 |
| By: | Francisco Arizala; Diana Ricciulli-Marín; Johanna Schauer |
| Abstract: | This paper studies market power in Mexican industries over the period 2008-23 using establishment-level data from the Mexican Economic Census. We document a substantial increase in the average price markup over marginal costs, from 12 percent in 2008 to 27 percent in 2023. The sources of this increase vary across sectors and time: services, particularly wholesale and retail trade, account for most of the increase in markups until 2018, while manufacturing, led by transportation equipment and export-oriented industries, plays a larger role in more recent years. Rising markups in services are associated with greater local labor market concentration, suggestive of increasing monopsony power. In manufacturing, markup growth is linked to higher capital expenditure, consistent with firms sustaining larger markups to recover higher fixed costs. Moreover, rising markups in manufacturing are positively associated with total factor productivity, whereas in services they are uncorrelated with productivity. Overall, these findings suggest that while market power has increased over time, its underlying drivers have shifted from monopsonistic power in labor markets to higher fixed costs, with more favorable efficiency implications in recent years. |
| Keywords: | Market power; markups; concentration; productivity; capital |
| Date: | 2026–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/181 |
| By: | Kaijing Ding; Lu Dai; Mark Hansen |
| Abstract: | This study provides a method to quantify the benefits of shifting passenger traffic from air to high-speed rail from the perspective of flight-delay cost reduction. We first estimate the number of flight reductions for airport origin-destination pairs based on the high-speed rail ridership forecasts provided in the California High-Speed Rail 2020 Business Plan, and then distribute these flight reductions to quarter-hour intervals. Lasso models are applied to estimate the impact of reduced queuing delays at SFO, LAX, and SAN on arrival delays at the national Core 29 airports. These delay reductions are then monetized using aircraft operating costs and the value of passenger time. We evaluate alternative airport-capacity and flight-schedule scenarios, as well as multiple percentiles of probabilistic high-speed rail ridership forecasts. The resulting estimates indicate flight-delay cost savings of $51-88 million in 2018 dollars in 2029 and $235-392 million in 2018 dollars in 2033. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.05636 |
| By: | Scott R. Baker; Justin Balthrop; Mark J. Johnson; Jason D. Kotter; Kevin Pisciotta |
| Abstract: | This paper examines the rapid expansion and convergence of retail betting markets. We analyze market design elements, discuss economic utility, and highlight shared behavioral drivers of sports betting markets, prediction markets, and retail options trading. Our review underscores how technological innovation, behavioral biases, and regulatory arbitrage have shaped recent market evolution. We highlight important considerations for policy-makers facing a changing landscape and outline possibilities for further research. |
| JEL: | G11 G4 G5 G50 K20 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35520 |
| By: | Enrique Martínez García; Ron Mau |
| Abstract: | Higher tariffs do not automatically show up one-for-one in consumer prices. Price effects depend on how firms respond. Foreign exporters may cut pre-tariff prices to preserve access to the U.S. market, while domestic importers or retailers may absorb part of the increase with lower margins. |
| Date: | 2026–08–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103683 |
| By: | Perst, Florian; Schmitt, Noel; Schubart, Constantin |
| Abstract: | This study examined the effects of the labelling requirement for AI-generated image content, introduced by Regulation (EU) 2024/1689, on advertising effectiveness in commercial tourism marketing. The aim was to investigate whether the legally mandated transparency disclosure in an advertisement negatively influences key advertising effectiveness dimensions. The variables examined included recall, perceived credibility, attitude toward the ad, trust, and purchase intention. Using a quantitative online survey with an experimental A/B design (N = 144), consumer responses to an advertisement featuring a real photograph were compared with those to a visually equivalent advertisement labelled as AI-generated. The results revealed no significant differences between the groups, indicating that the transparency disclosure did not reduce advertising effectiveness for the visually high-quality stimulus used here. Companies may therefore be able to leverage the efficiency potential of generative AI without necessarily suffering losses in advertising effectiveness. However, the absence of significant differences does not constitute evidence of equivalence, and the transferability of these findings to other industries, motifs, and target groups requires further empirical investigation. |
| Keywords: | artificial intelligence, AI labelling, advertising effectiveness, transparency requirement, deepfake, AI regulation, Regulation (EU) 2024/1689 |
| JEL: | M31 M37 D91 O33 K24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iubhbm:343089 |
| By: | Joshua S. Gans |
| Abstract: | Firms have begun granting passive equity stakes to the government that regulates them. The received reading is “skin in the game:” ownership moves profits onto the treasury's balance sheet, so policy softens. We show that once the price of the stake and the firm's policy exposure are determined in equilibrium, the owners' consent reveals nothing about whether they benefit. Sellers capitalise the induced policy improvement into the price, so an anticipated purchase can only occur at a discount; a government with bargaining power pays zero for a sufficiently exposed firm; and a government that can first raise exposure manufactures precisely enough of it to drive the negotiated price to its legal floor. Equity becomes tribute. Prohibition is nonetheless dominated: at fixed exposure, a passive stake corrects the political underweighting of shareholders. Welfare is maximised by priced permission—an ownership cap at the fixed-exposure optimum and a per-unit price floor equal to baseline no-stake value. The floor, unlike the cap, requires no knowledge of the government's political weights. |
| JEL: | D72 G38 L32 L51 P18 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35518 |
| By: | Steenkamp, Daan; MacKay, Donald |
| Abstract: | South Africa's economic transformation policies have not delivered inclusive economic growth, despite being part of South Africa's legislation for decades. The country's post-2009 growth trajectory - persistently below 2% annually - has intensified debate about whether transformation and growth are being advanced together or are increasingly in tension. Despite the enormous resources spent on compliance and accreditation, very little is known about the impact of Broad-based Black Economic Empowerment (B-BBEE) over the last 23 years because compliance data are not publicly available. Government's unwillingness to publish data means there is no authoritative research that quantifies compliance costs or assesses the firm and macroeconomic impacts of these requirements. So, we ran a survey to understand how firms view the costs and benefits of B-BBEE regulations. The survey shows that these compliance costs act as stealth taxes that strongly disincentivise firm start-up or growth if the firm is small and the founders are not black. |
| Keywords: | Black Economic Empowerment, Cost of Regulations |
| JEL: | D2 D22 J7 L51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esrepo:343032 |
| By: | Wayne B. Gray; Ronald Shadbegian; Ann Wolverton |
| Abstract: | We investigate whether, by providing better and more timely information, the first mandatory online reporting and auditing program for wastewater discharge releases in the U.S. improved facility compliance and environmental performance, while also allowing state regulators to more effectively monitor and enforce regulations. Examining reporting programs with automated feedback features can also offer insights into the potential for artificial intelligence-based tools to improve compliance and environmental performance. Difference-in-difference results suggest that the program resulted in significant increases in the completeness of reporting and reductions in discharges but also greater reported violations. We find that effects are larger for minor dischargers and publicly owned facilities. We also find evidence consistent with the more efficient targeting of inspections by state authorities towards plants with a history of recent noncompliance, which could be a potential mechanism driving these results. |
| JEL: | Q53 Q58 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35525 |
| By: | Montgomery, Jessica Jo |
| Abstract: | Artificial intelligence governance frameworks increasingly specify accountability, human oversight, risk management, transparency, and lifecycle monitoring, but formal adoption does not establish that an organization can carry those commitments into consequential operational decisions. This conceptual paper argues that organizational readiness is a necessary condition for ethical AI governance. It defines the Governance Execution Gap as the distance between governance expectations and the institutional capacity to exercise decision authority, route risk, produce evidence, monitor deployed systems, and intervene when conditions change. Drawing on organizational readiness theory, the Technology-Organization-Environment framework, established AI governance standards and policy, and scholarship on translating AI ethics principles into practice, the paper develops an AI Governance Readiness Framework with five interdependent domains and corresponding Governance Execution Gates. It also introduces an Accountability Gap that distinguishes visibility, assigned responsibility, decision authority, and practical capacity to act. The central normative claim is that accountability and human oversight are ethically meaningful only when organizations can make those responsibilities executable under real operating conditions. A practitioner-oriented scorecard and illustrative cybersecurity triage scenario demonstrate how the model may support decisions without claims of empirical validation. The framework is proposed as a testable conceptual model for future empirical evaluation across high-consequence environments. |
| Date: | 2026–08–24 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:s2mz7_v1 |