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on Regulation |
| By: | Xavier Freixas; Gyöngyi Lóránth; Alan D. Morrison |
| Abstract: | We investigate the optimal regulation of financial conglomerates which combine a bank and a non-bank financial institution. The conglomerate’s risk-taking incentives depend upon the level of market discipline it faces, which in turn is determined by the conglomerate’s liability structure. We examine optimal capital requirements for standalone institutions, for integrated financial conglomerates, and for financial conglomerates that are structured as holding companies. For a given risk profile, integrated conglomerates have a lower probability of failure than either their standalone or decentralised equivalent. However, when risk profiles are endogenously selected conglomeration may extend the reach of the deposit insurance safety net and hence provide incentives for increased risk-taking. As a result, integrated conglomerates may optimally attract higher capital requirements. In contrast, decentralised conglomerates are able to hold assets in the socially most efficient place. Their optimal capital requirements encourage this. Hence, the practice of "regulatory arbitrage", or of transferring assets from one balance sheet to another, is welfare-increasing. We discuss the policy implications of our finding in the context not only of the present debate on the regulation of financial conglomerates but also in the light of existing US bank holding company regulation. |
| JEL: | G21 G22 G28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2005fe03&r=reg |
| By: | Art Durnev; Amrita S. Nain |
| Abstract: | Using a sample of 2,827 firms from 21 countries we examine whether insider trading laws achieve the primary objective for which they are introduced – protecting uninformed investors from private information-based trading. We find that when control is concentrated in the hands of a large shareholder, insider trading regulation is less effective in reducing private information-based trading if investor protection is poor. We suggest that controlling shareholders who are banned from trading may resort to covert expropriation of firm resources, creating more information asymmetry and thereby encouraging private information trading by informed outsiders. Consistent with this, we find evidence that when the rights of controlling shareholders are high, insider trading restrictions are associated with greater earnings opacity. |
| Keywords: | Insider Trading Regulation, Ownership, Private Information Trading, Earnings Opacity |
| JEL: | G15 G14 G38 |
| Date: | 2004–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2004-695&r=reg |
| By: | Christopher J. Ellis (University of Oregon); Oguzhan C. Dincer (Massey University) |
| Abstract: | Several empirical studies have found a negative relationship between corruption and the decentralization of the powers to tax and spend. In this paper we explain this phenomenon using a model of Yardstick Competition. Further, using data on government corruption in US states, we provide some new evidence that supports the theoretical findings. |
| Keywords: | Corruption, decentralization, yardstick competition |
| JEL: | H20 H29 |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ore:uoecwp:2005-5&r=reg |
| By: | Savvateev Alexey |
| Abstract: | Consider a “linear world” populated by several agents. These agents’ locations are identified with optimal variety of a horizontally differentiated local public good. Agents are to be partitioned into several communities (hereafter, groups), and each group chooses a variety of public good to be produced and consumed by members of that group via the majority voting procedure. It is shown that a stable partition may fail to exist, where stability means that no potential group would like to secede and form a new community. At the same time, compensation schemes are proposed which guarantee the existence of a stable partition. Small societies are studied in detail, as well as certain special types of distributions of agents’ locations. |
| Keywords: | Russia, stability, partitions, redistribution, core of a cooperative game |
| JEL: | D70 H20 D73 |
| Date: | 2004–12–25 |
| URL: | http://d.repec.org/n?u=RePEc:eer:wpalle:04-13e&r=reg |
| By: | Guglielmo Maria Caporale; Mario Cerrato |
| Abstract: | This paper provides further empirical results on the relationship between black market and official exchange rates in six emerging economies (Iran, India, Indonesia, Korea, Pakistan, and Thailand). First, it applies both time series techniques and heterogeneous panel methods to test for the existence of a long-run relation between these two types of exchange rates. Second, it tests formally the validity of the proportionality restriction implying a constant black-market premium. Third, in addition to the long-run equilibrium, it also analyses the short-run dynamic responses of both markets to shocks. Evidence of market inefficiency and incomplete (or longlived) reversion to long-run equilibrium is found. This implies that financial managers can only partially reduce the exchange rate risk, whilst monetary authorities can effectively pursue their policy objectives by imposing foreign exchange or direct controls. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:bru:bruedp:05-04&r=reg |
| By: | Lindbeck, Assar (Institute for International Economic Studies, Stockholm University); Niepelt, Dirk (Institute for International Economic Studies, Stockholm University) |
| Abstract: | We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an "economic-theory" perspective on optimal corrective measures with the "legalistic" perspective adopted in the SGP.We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) and procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce. |
| Keywords: | Stability and Growth Pact; spillover effects; policy failures; Pigouvian taxes; policy delegation |
| JEL: | E63 F33 F42 H60 |
| Date: | 2004–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iiessp:0733&r=reg |
| By: | Biung-Ghi Ju (Department of Economics, The University of Kansas) |
| Abstract: | We formalize a notion of conditionally decisive powers of which the exercise depends on social consent. Decisive powers, or the so-called libertarian rights, are examples and much weaker forms of powers are covered by our notion. Main results provide an axiomatic characterization for existence of a system of powers and its uniqueness as well as characterizations of various families of rules represented by systems of powers. In particular, we show that a rule satisfies monotonicity, independence, and symmetric linkage (person i and i¡¯s issues should be treated symmetrically to person j and j¡¯s issues for at least one linkage between issues and persons) if and only if there is a system of powers representing the rule and that the system is unique up to a natural equivalence relation. Considering a domain of simple preference relations (trichotomous or dichotomous preferences), we show that a rule satisfies Pareto efficiency, independence, and symmetry (the symmetric treatment condition in a model with an exogenous linkage between issues and persons) if and only if it is represented by a ¡°quasi-plurality system of powers¡±. For the exercise of a power under a quasi-plurality system, at least either a majority (or (n + 1)/2) consent or a 50% (or (n ? 1)/2) consent is needed. |
| Keywords: | Powers; Consent; Libertarian Rights; Monotonicity; Independence; Symmetric linkage; Symmetry; Pareto efficiency; Plurality |
| JEL: | D70 D71 D72 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:200508&r=reg |
| By: | Witold J. Henisz; Bennet A. Zelner; Mauro F. Guillen |
| Abstract: | Why do some countries adopt market-oriented reforms such as deregulation, privatization and liberalization of competition in their infrastructure industries while others do not? Why did the pace of adoption accelerate in the 1990s? Building on neo-institutional theory in sociology, we argue that the domestic adoption of market-oriented reforms is strongly influenced by international pressures of coercion and emulation. We find robust support for these arguments with an event-history analysis of the determinants of reform in the telecommunications and electricity sectors of as many as 205 countries and territories between 1977 and 1999. Our results also suggest that the coercive effect of multilateral lending from the IMF, the World Bank or Regional Development Banks is increasing over time, a finding that is consistent with anecdotal evidence that multilateral organizations have broadened the scope of the “conditionality” terms specifying market-oriented reforms imposed on borrowing countries. We discuss the possibility that, by pressuring countries into policy reform, cross-national coercion and emulation may not produce ideal outcomes. |
| Keywords: | Privatization, deregulation, liberalization, infrastructure, International Monetary Fund (IMF), World Bank, Multileral Institutions, Development, Reform, Globalization, Adoption, International |
| JEL: | O19 F02 F42 H11 L33 L96 L94 N70 P16 C41 |
| Date: | 2004–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2004-713&r=reg |
| By: | Ugo Panizza (Research Department, Inter-American Development Bank); Monica Yañez (Research Department, Inter-American Development Bank) |
| Abstract: | This paper uses opinion surveys to document discontent with the pro-market reforms implemented by most Latin American countries during the 1990s. The paper also explores four possible sets of explanations for this discontent: (i) a general drift of the populace’s political views to the left; (ii) an increase in political activism by those who oppose reforms; (iii) a decline in the people’s trust of political actors; and (iv) the economic crisis. The paper’s principal finding is that the macroeconomic situation plays an important role in explaining the dissatisfaction with the reform process. |
| Keywords: | Political economy; Reforms; Crisis; Latin America |
| JEL: | P16 O54 |
| Date: | 2004–01 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:1004&r=reg |
| By: | Adriana Kugler adkugler@uh.edu (University of Houston, Universitat Pompeu Fabra, NBER, CEPR and IZA); Giovanni Pica (University of Southampton, University of Salerno and CSEF) |
| Abstract: | This paper uses the Italian Social Security employer-employee panel to study the effect of a reform that introduced a cost for unjust dismissals only for firms below 15 employees, while leaving firing costs unchanged for bigger firms. We find that the increase in dismissal costs decreased accessions and separations in small relative to big firms, the more so in sectors with higher employment volatility. Moreover, the reform reduced firms’ entry rates while increasing the exit rate. We also find evidence that higher EPL flattened employment policies over the cycle |
| Keywords: | Costs of Unjust Dismissals, European Unemployment, Firms’ Entry and Exit, Employment Volatility |
| JEL: | E24 J63 J65 |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:135&r=reg |