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on Regulation |
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Issue of 2005‒10‒29
nineteen papers chosen by Christian Calmes Université du Québec en Outaouais, Canada |
| By: | Fabrizio Cafaggi |
| Abstract: | The changes of the European regulatory space propose new questions concerning the identity and the liability of regulators. The increasing use of self-regulation, co-regulation and delegated self-regulation in different fields have empowered private regulators. They have been playing an increasing strategic role in defining the features of market regulation and integration at European and national level. To ensure effectiveness and accountability of these regulatory strategies a European coordinated regime of conflict of interest and liability becomes crucial. This essay focuses on liability of private regulators for (1) failure to regulate or (2) failure to control regulatees’ compliance and for defective regulation and control. A set of principles concerning liability of private regulators should be tailored, paying attention to field specificity. The analysis suggests that there should be a significant difference between liability regimes concerning pure private regulators and those related to private regulators acting within a coordinated framework of co-regulation and delegated self-regulation. Furthermore it is claimed that a stronger correlation between models of regulation (i.e command and control, responsive regulation, market incentives) and models of liability is needed while today’s national legal systems mainly associate liability regimes to the organizational model of the private regulator (association, foundation, company, consortium etc.). The design of liability regimes for private regulator should combine the regulatory model and the governance structure so as to guarantee compliance of regulations and accountability towards third parties. The article concludes with a research agenda concerning the blurring relationship between standard setting and monitoring and its influence on the liability aspectsm |
| Keywords: | regulation; governance; judicial review |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euilaw:p0022&r=reg |
| By: | Carolyn Currie (School of Finance and Economics, University of Technology, Sydney) |
| Abstract: | Most problematic of the Basel II capital adequacy requirements is the subset of Pillar I, requiring provision for operational risk (OR) as distinct from credit and market risk. Previous tests of the strategic effect of this new regulation from three prior Quality Impact Studies (QIS) conducted in G10 countries under the guidance of the Bank for International Settlements, have concluded that OR requirements poses difficulties of definition, implementation, and strategic planning. Anticipated strategic effects include dramatic changes to product development, investment and asset mix, as well as the necessity to rapidly develop new risk rating models and techniques, together with vastly expanded internal and external audit compliance routines. Unlike QIS1, 2 and 3, QIS4 focuses on operational risk, but still has drawbacks. This paper discusses its approach, in view of the ongoing difficulties that banks are experiencing with operational risk, particularly in the construction of a database. It concludes by listing the unanswered questions that have not even been addressed in four studies of the strategic impact of Basel II?s OR requirements. It also suggests that many smaller banks and emerging nations may not be able to use the sophisticated approaches and hence will suffer a competitive disadvantage. Hence in view of drawbacks in the simpler approaches such as lack of correlation of operational risk and revenue, other indicators such as the standard deviation of efficiency measures are suggested. |
| Keywords: | operational risk; Basel II |
| JEL: | E42 E44 E58 |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:wpaper:143&r=reg |
| By: | Lars Frisell (Sveriges Riksbank); Johan N.M. Lagerlof (Royal Holloway, University of London) |
| Abstract: | A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare -- as well as consumers' -- may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties. |
| Keywords: | Price regulations, price discrimination, incomplete information, cheap talk, Robinson-Patman Act |
| JEL: | D82 L11 L42 |
| Date: | 2005–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0510011&r=reg |
| By: | Richard Damania (Adelaide University); Erkan Yalcin (Yeditepe University) |
| Abstract: | There is a growing evidence that political corruption is often closely associated with the rent seeking activities of special interest groups. This paper examines the nature of the interaction between the lobbying activities of special interest groups and the incidence of political corruption and determines whether electoral competition can eliminate political corruption. We obtain some striking results. Greater electoral competition serves to lessen policy distortions. However, this in turn stimulates more intense lobbying which increases the scope of corrupt behavior. It is shown that electoral competition merely serves to alter the type of corruption that eventuates, but cannot eliminate it. |
| Keywords: | Corruption, Lobbying, Political Competition |
| JEL: | D72 |
| Date: | 2005–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0510012&r=reg |
| By: | Philippe Guizol (CIRAD); Jean-Marc Roda (CIRAD); Dwi R. Muhtaman (Latin); Pierre Laburthe (ENSAR); Swan Fauveaud (INA-PG) |
| Abstract: | Teak was first planted centuries ago in Java and the industry reached its peak in the 19th century. Java's teak plantations, the most extensive in the world, cover some 200 000 hectares, but they are being overexploited and NGOs are questioning their management by the state. Teak has become integral to Javanese culture and the industry stretches far back in time. However, in just a few years after the Asian economic crisis, the industry saw an unprecedented boom in exports followed by a crash in world teak prices. The teak furniture industry has two sectors working in parallel. The small-scale sector, which is closely bound up with the huge domestic market, exercises considerable pressure on local prices and competes for access to teak resources with the industrial sector, which mainly supplies foreign markets. Considering the complexity of the problem, the solutions being put forward are simplistic. The European NGO campaign to boycott Indonesian teak, which is supposed to protect the resource, is producing sideeffects that are actually worsening the problem. Ethical commitments from the main producers, incentives for small local stakeholders and gradual improvements in the production system would appear to be a more reasonable course of action. |
| Keywords: | teak, wood industry, illegal logging, fair trade, decision making process, certification, Indonesia |
| JEL: | P Q Z |
| Date: | 2005–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpot:0510013&r=reg |
| By: | Soumyen Sikdar (Dept. of Economics, Calcutta University, India); Sarbajit Chaudhuri (Dept. of Economics, Calcutta University, India) |
| Abstract: | The present paper analyzes the phenomenon of corruption in the context of a Public Works Department (PWD) in a developing country city and examines its tenacity in the face of anticorruption measures. Different behaviour patterns of the supervisor (official) of the PWD have been considered. The interesting result to emerge is that corruption may show a high degree of robustness against marginal attacks and such measures may actually be counterproductive in the different cases considered in this paper. |
| Keywords: | Corruption, investment project, supervisor, contractor, bribe, anticorruption measures |
| JEL: | C71 D72 H54 |
| Date: | 2005–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwppe:0510020&r=reg |
| By: | DAVID BACH (Instituto de Empresa) |
| Abstract: | Internet telephony (VOIP) has the potential to transform the world of voice communications more profoundly than anything since the invention of the telephone itself. As telecommunications incumbents and a range of new entrants begin rolling out commercial VOIP services, policymakers around the world are grappling with the regulatory implications. In the United States and the European Union, the two largest potential VOIP markets, efforts are underway to fit VOIP into existing regulatory frameworks. This process of "regulatory classification" is by no means a purely administrative act. A lot is at stake and different interest groups have therefore mobilized to shape the respective outcomes. |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:emp:wpaper:wp05-19&r=reg |
| By: | Kugler, Adriana; Pica, Giovanni |
| Abstract: | Labor market regulations have often been blamed for high and persistent unemployment in Europe, but evidence on their impact remains mixed. This paper analyzes how labor and product market regulations interact to affect turnover and unemployment. We present a matching model which illustrates how barriers to entry in the product market mitigate the impact of labor market deregulation. We, then, use the Italian Social Security employer-employee panel to study the interaction between barriers to entry and dismissal costs. We exploit the fact that costs for unjust dismissals in Italy increased for firms below 15 employees relative to bigger firms after 1990. We find that the increase in dismissal costs after 1990 decreased accessions and separations in small relative to big firms, especially for women. Moreover, consistent with our model, we find evidence that the reduction in dismissal costs had smaller effects on turnover for women in sectors faced with strict product market regulations. |
| Date: | 2003–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:stn:sotoec:0310&r=reg |
| By: | Kugler, Maurice; Verdier, Thierry; Zenou, Yves |
| Abstract: | We analyse an oligopoly model in which differentiated criminal organisations globally compete on criminal activities and engage in local corruption to avoid punishment. When law enforcers are sufficiently well-paid, difficult to bribe and corruption detection highly probable, we show that increasing policing, or sanctions, effectively deters crime. However, when bribing costs are low, that is badly-paid and dishonest law enforcers work in a weak governance environment, and the rents from criminal activity relative to legal activity are sufficiently high, we find that increasing policing and sanctions can generate higher crime rates. In particular, the relationship between the traditional instruments of deterrence, namely intensification of policing and sanctions, and the crime rate is nonmonotonic. Beyond a threshold, further increases in intended expected punishment create incentives for organised crime extending corruption rings, and ensuing impunity results in a fall of actual expected punishment that yields more rather than less crime. JEL Classification: K42, L13, O17. |
| Keywords: | Intended deterrence, organised crime, weak governance, corruption. |
| Date: | 2004–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:stn:sotoec:0407&r=reg |
| By: | Luigi Benfratello (University of Torino and Ceris-CNR); Alberto Iozzi (University of Rome "Tor Vergata" and University of Leicester); Paola Valbonesi (University of Padua) |
| Abstract: | The Italian highway industry has undergone an institutional and regulatory reform through the last decade, characterised by changes in ownership and a new price cap framework. To assess the effect of the reforms on firms’ performance, we use information on all the 20 Italian concessionaires over the 1992-2003 period and 1) estimate the technical progress in the industry, thereby providing a reference value for the X factor in the price cap formula; 2) assess the relative productivity of private vs. public concessionaires; 3) evaluate whether price cap regulation has induced firms to use resources efficiently, 4) determine the possible effect of the inclusion of the quality index in the price cap formula. We find that the introduction of a price cap regime does not increase firms’ productivity whereas a sharp increase in maintenance costs is recorded, arguably due to the quality indicator in the price cap formula. Furthermore, firms appear to have gained from the privatisation process and from a technical progress occurred in the period. We also find high density economies and a steady and large increase in traffic. Overall, these results suggest that the X factor has been set too conservatively in past years which in turn explains the high profits recorded by franchisees under price cap regulation. |
| Keywords: | Price Cap Regulation, Motorways |
| JEL: | L51 L92 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0002&r=reg |
| By: | Urs Schweizer (Department of Economics, University of Bonn, Adenauerallee 24, D-53113 Bonn, Germany) |
| Abstract: | This paper revisits the economic analysis of contract law for a setting of cooperative investments. While Che and Chung (1999) have shown that expectation damages perform rather poorly, the present paper argues that this negative result follows from their impicit assumption of unilateral expectation damages. Yet, the very nature of cooperative investments gives rise to the possibility that both parties may claim expectation damages. It is shown that such a regime of bilateral expectation damages provides the incentives for the first best solution even in a framework of binary choice where, for selfish investments, the traditional overreliance result would hold. |
| JEL: | K12 D62 |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:10&r=reg |
| By: | Wolfgang Bühler (Chair of Finance, University of Mannheim); Christian Koziol (Chair of Finance, University of Mannheim) |
| Abstract: | In this paper, we analyze the consequences of bank regulation on the size of the real sector. In particular, we address the question whether exogenous shocks on the return-risk characteristics of the technology and on the equity of the real sector are intensified or damped by a value-at-risk constraint on the credit portfolio of a bank. We consider a one-period model with three risk-averse agents, an investor, a bank, and a firm. The size of the markets for deposits and loans, their prices and the size of the real sector are endogenous. We find that stricter regulation results in higher loan rates, lower deposit rates, and lower activity in the real sector. A negative shock on the return-risk position or on the risk buffer of the real sector reduces the activities in the economy. Surprisingly, the sensitivity of the real sector's activities on negative shocks is smaller for a regulated financial sector than for a non-regulated one. Therefore, in our economy, imperfections in the financial sector do not result in procyclical or acceleration effects. |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:17&r=reg |
| By: | Yvan Lengwiler (University of Basel, Department of Economics (WWZ), Petersgraben 51, CH-4003 Basel, Switzerland); Elmar Wolfstetter (Institut für Wirtschaftstheorie I, Humboldt Universität zu Berlin, Spandauer Str. 1, D-10099 Berlin, Germany) |
| Abstract: | In many auctions, the auctioneer is an agent of the seller. This invites corruption. We propose a model of corruption in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid, whichever is more profitable. We characterize equilibrium bidding in first- and second-price auctions, show how corruption distorts the allocation, and why both the auctioneer and bidders may have a vested interest in maintaining corruption. Bid rigging is initiated by the auctioneer after bids have been submitted in order to minimize illegal contact and to realize the maximum gain from corruption. |
| Keywords: | auctions, procurement, corruption, right of first refusal, numerical |
| JEL: | D44 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:39&r=reg |
| By: | Hein Roelfsema |
| Abstract: | This paper analyzes the effects of legislative bargaining in the EU on public goods provision and lobbying. We argue that delegation to a single policy maker at the centralized level -which we call supranational policy making- increases lobbying expenditures. When policy in the center is formulated by a committee consisting of national representatives -intergovernmental decision making- centralization causes lobbying expenditures fall, for centralization makes national policy makers more responsive to demands from domestic lobbies. In the extensions we consider the effects of enlargement on lobbying and analyze endogenous lobby formation. |
| Keywords: | Centralization, Fiscal Federalism, Legislative Bargaining, Lobbying, the European Union |
| JEL: | D72 D78 F36 H41 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0416&r=reg |
| By: | Giuseppe Dari-Mattiacci; Gerrit de Geest |
| Abstract: | Sharing rules have a filtering effect on violations: they prevent the most harmful violations and let the least harmful ones occur. We show under what conditions the filtering effect improves social welfare and argue that this may explain why, in most areas of the law, sharing rules are, in general, preferred to rules that entirely burden one party. Our analysis applies to comparative negligence, communal liability, the allocation of police investigation efforts, contract remedies for non-verifiable breaches such as those that may occur in marriage and employment contracts, and to the distribution of shares in partnerships. |
| Keywords: | comparative negligence, law enforcement, divorce, employment contracts, theory of the firm. |
| JEL: | K13 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0417&r=reg |
| By: | Gerrit de Geest; Giuseppe Dari-Mattiacci |
| Abstract: | Judges have a tendency to be more demanding than regulators. In the United States, a majority of the courts has adopted the rule that the unexcused violation of a statutory standard is negligence per se. However, the converse does not hold: compliance with regulation does not relieve the injurer of tort liability. In most European legal systems, the outcome is similar. We use a framework in which, on the one hand, the effects of tort law are undermined by insolvency and evidence problems and, on the other hand, regulation is expensive in terms of monitoring and information gathering. We show that a regulatory standard set below the socially optimal level of care can be sufficient to remove the shortcomings of tort law. In essence, this is because the injurer's cost function may have two local minima that make only major deviations from the socially desirable level of precaution advantageous for the injurer, but not minor violations. This may occur when precaution also or only reduces the magnitude of the harm and under liability for negligence. Thus, minimum regulation can completely restore optimal liability incentives. Conversely, liability reduces the cost of enforcing regulation in two ways: first, enforcing minimum regulation rather than a standard set at the socially optimal level is cheaper because it requires lower monitoring levels; second, tort liability already provides a part of the sanction for sub-optimal behavior, thus allowing for a further reduction in monitoring. Moreover, we show that minimum regulation does not need to be set at a very precise level. On the contrary, any level within a certain range is socially optimal. This allows regulators to further curb their cost by saving on information gathering. We show that an imperfectly working tort system can be fully corrected by minimum regulation in a variety of circumstances (for instance, even if the injurer is unable to compensate for the harm at the optimal level of precaution, and even if the rule in force is strict liability or a cause-in-fact variant of negligence). |
| Keywords: | insolvency, judgment proof problem, disappearing defendant, bankruptcy, regulation |
| JEL: | K13 K32 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0506&r=reg |
| By: | Pursey P.P.M.A.R. Heugens; Jordan Otten |
| Abstract: | Contemporary contributions to the comparative corporate governance literature are often couched in simple, dichotomous terms. Corporate governance systems are typically described as "insider" versus "outsider" systems, as "shareholder" versus "stakeholder" capitalism, or as involving "equity-financed" versus "debt-financed" firms. We are suspicious of greater variety than allowed by these dichotomous models, and report an explorative study on corporate governance reforms around the world in search of heterogeneity. The study involves a 38-country comparative study of corporate governance reform codes, and uses content- and exploratory factor analyses to demonstrate that they reference not two but no less than five independent but mutually complementary corporate governance mechanisms (CGMs). |
| Keywords: | Institutional influences, diffusion of governance mechanisms, comparative corporate governance |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0508&r=reg |
| By: | Marc Goergen; Marina Martynova; Luc Renneboog |
| Abstract: | This paper contributes to the research on corporate governance by predicting the effects of European takeover regulation. In particular, we investigate whether the recent reforms of takeover regulation in Europe are leading to a harmonization of the national legislations. With the help of 150 corporate governance lawyers from 30 European countries, we collected the main changes in takeover regulation. We assess whether a process of convergence towards the Anglo-(American) corporate governance system has been started and we find that this is the case. We make predictions as to the consequences of the reforms for the ownership and control. However, we find that, while in some countries the adoption of a unified takeover code may result in dispersed ownership, in others it may further consolidate the blockholder-based system. |
| Keywords: | takeover regulation, mergers and acquisitions, corporate governance, ownership and control, governance regulation, convergence. |
| JEL: | G3 G34 G38 K2 K22 K40 G32 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0519&r=reg |
| By: | Greg Rawlings; Brigitte Unger |
| Abstract: | To compete for criminal money by means of low bank secrecy seems a tempting strategy for countries in order to attract additional funds. We show in a model that this "Seychelles-strategy" can increase national output, in particular if a country takes a (Stackelberg ) leadership in the competition game. If all countries try to do the same, there will be a race to the bottom and a supranational authority like the FATF (Financial Action Task Force) must intervene. However, there are also some intrinsic barriers to the "Seychelles-strategy". Among others, criminal capital might crowd out legal capital and money laundering might increase crime. Our findings suggest that countries have created niches for laundering. Small countries can free ride for a while, but eventually will face external sanctions and internal crime problems. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0526&r=reg |