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on Regulation |
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Issue of 2006‒06‒17
eleven papers chosen by Christian Calmes Universite du Quebec en Outaouais, Canada |
| By: | Beth A. Freeborn (Department of Economics, College of William and Mary) |
| Abstract: | Contrary to one goal of drug law enforcement, cocaine prices decreased between the years 1986 and 2000. This paper discusses how arrest avoidance behavior can affect cocaine consumer and dealer response to law enforcement. Dealers may avoid arrest by incurring quick and easy sales; thus pure gram price is negatively related to dealer enforcement. Consumers avoid arrest by accepting high prices rather than search for lower prices. Thus pure gram price is increasing in consumer enforcement. Because the implications from arrest avoidance conflict with traditional models of how enforcement should affect prices, I study the relationship using empirical analysis. Using purchase level data from the Drug Enforcement Administration and legal penalty data, I find a negative and significant relationship between dealer enforcement and pure gram price, which is consistent with the intuition of arrest avoidance. |
| Keywords: | admission Drug law enforcement, Incarceration, Drug prices, Arrest Rates |
| JEL: | I1 K4 L2 |
| Date: | 2006–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwm:wpaper:30&r=reg |
| By: | Frank Ackerman |
| Abstract: | Will unbearable regulatory costs ruin the US economy? This specter haunts official Washington, just as fears of communism once did. Once again, the prevailing rhetoric suggests, an implacable enemy of free enterprise puts our prosperity at risk. Like anti-communism in its heyday, anti-command-and-control-ism serves to narrow debate,promoting the unregulated laissez-faire economy as the sole acceptable goal and standard for public policy. Fears of the purported costs of regulation have been used to justify a sweeping reorganization of regulatory practice, in which the Office of Management and Budget (OMB) is empowered to, and often enough does, reject regulations from other agencies on the basis of intricate, conjectural, economic calculations. This article argues for a different perspective: what is remarkable about regulatory costs is not their heavy economic burden, but rather their lightness. Section 1 identifies two general reasons to doubt that there is a significant trade-off between prosperity and regulation: first, regulatory costs are frequently too small to matter; and second, even when the costs are larger, reducing them would not always improve economic outcomes. The next three sections examine evidence on the size and impact of regulatory costs. Section 2 presents cost estimates for a particularly ambitious and demanding environmental regulation, REACH -- the European Union's new chemicals policy. Section 3 discusses academic research on the "pollution haven" hypothesis, i.e. the assertion that firms move to developing countries in search of looser environmental regulations. Section 4 reviews the literature on ex ante overestimation of regulatory costs, including the recent claims by OMB that costs are more often underestimated (and/or benefits overestimated) in advance. Turning to the economic context, Section 5 explains why macroeconomic constraints may eliminate any anticipated economic gains from deregulation. Section 6 introduces a further economic argument against welfare gains from deregulation, based on the surprising evidence that unemployment decreases mortality. Section 7 briefly concludes. |
| URL: | http://d.repec.org/n?u=RePEc:dae:daepap:06-02&r=reg |
| By: | John Bennett (Brunel University); Saul Estrin (London Business School and IZA Bonn) |
| Abstract: | We model entry by entrepreneurs into new markets in developing economies with regulatory barriers in the form of licence fees and bureaucratic delay. Because laissez faire leads to ‘excessive’ entry, a licence fee can increase welfare by discouraging entry. However, in the presence of a licence fee, bureaucratic delay creates a strategic opportunity, which can result in both greater entry by first movers and a higher steady-state number of firms. Delay also leads to speculation, with entrepreneurs taking out licences to obtain the option of immediate entry if they later observe the industry to be profitable enough. |
| Keywords: | entry, entry barriers, developing economy |
| JEL: | L50 O14 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2150&r=reg |
| By: | Thibault Gajdos (Centre d'Economie de la Sorbonne); Feriel Kandil (CERC) |
| Abstract: | Most prominent models of economic justice (and especially those proposed by Harsanyi and Rawls) are based on the assumption that impartiality is required for making moral decisions. However, although Harsanyi and Rawls agree on that, and furthermore agree on the fact that impartiality can be obtained under appropriate conditions of ignorance, they strongly disagree on the consequences of these assumptions. According to Harsanyi, they provide a justification for the utilitarian doctrine, whereas Rawls considers that they imply egalitarianism. We propose here an extension of Harsanyi's Impartial Observer Theorem, that is based on the representation of ignorance as the set of all possible probability distributions. We obtain a characterization of the observer's preferences that, under our most restrictive conditions, is a linear combination of Harsanyi's and Rawls' criteria. Furthermore, this representation is ethically meaningful, in the sense that individuals' utilities are cardinally measurable and unit comparable. This allows us to conclude that the impartiality requirement cannot be used to decide between Rawls' and Harsanyi's positions. Finally, we defend the view that a (strict) combination of Harsanyi's and Rawls' criteria provides a reasonable rule for social decisions. |
| Keywords: | Impartiality, justice, decision under ignorance. |
| JEL: | D63 D81 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:v06041&r=reg |
| By: | Marianne Bertrand; Simeon Djankov; Rema Hanna; Sendhil Mullainathan |
| Abstract: | We follow 822 applicants through the process of obtaining a driver’s license in New Delhi, India. To understand how the bureaucracy responds to individual and social needs, participants were randomly assigned to one of three groups: bonus, lesson, and comparison groups. Participants in the bonus group were offered a financial reward if they could obtain their license fast; participants in the lesson group were offered free driving lessons. To gauge driving skills, we performed a surprise driving test after participants had obtained their licenses. Several interesting facts regarding corruption emerge. First, the bureaucracy responds to individual needs. Those who want their license faster (e.g. the bonus group), get it 40% faster and at a 20% higher rate. Second, the bureaucracy is insensitive to social needs. The bonus group does not learn to drive safely in order to obtain their license: in fact, 69% of them were rated as “failures” on the independent driving test. Those in the lesson group, despite superior driving skills, are only slightly more likely to obtain a license than the comparison group and far less likely (by 29 percentage points) than the bonus group. Detailed surveys allow us to document the mechanisms of corruption. We find that bureaucrats arbitrarily fail drivers at a high rate during the driving exam, irrespective of their ability to drive. To overcome this, individuals pay informal “agents” to bribe the bureaucrat and avoid taking the exam altogether. An audit study of agents further highlights the insensitivity of agents’ pricing to driving skills. Together, these results suggest that bureaucrats raise red tape to extract bribes and that this corruption undermines the very purpose of regulation. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12274&r=reg |
| By: | W. Kip Viscusi |
| Abstract: | This article examines the economic basis for what is termed “rational discounting,” which entails full recognition of policy effects over time and exponential discounting at a riskless rate of return. Policies often cannot be ranked unambiguously in terms of their present or future orientation. Both failure to discount and preferential intergenerational discounting generate inconsistencies and economic anomalies. Office of Management and Budget discounting guidelines now stipulate more reasonable discount rates than earlier guidelines, but err in permitting open-ended preferential rates for intergenerational effects. The article presents a methodology for monetizing the value of statistical life for people of different ages and at different points in time. Review of regulatory analyses indicates increased consistency of discounting practices. However, examination of two policies with intergenerational effects, stratospheric ozone regulation and nuclear waste storage at Yucca Mountain, reveal failures to adopt a rational discounting approach. The influence of behavioral anomalies such as hyperbolic discounting may make full recognition of intertemporal effects in benefit-cost analysis more consequential than the use of preferential discount rates. |
| JEL: | Q50 D90 H10 L50 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12294&r=reg |
| By: | José Cadima Ribeiro (Universidade do Minho - NIPE); José de Freitas Santos (ISCAP - IPP and NIPE-UM) |
| Abstract: | International counterfeiting affects adversely producers, consumers and domestic economies. Some attempts have been made in the last years by international organisations (European Union, World Trade Organisation) to deal with this complex problem. Though some success has been achieved, the number of seizures of counterfeited goods detected in the external borders of EU has increased. This study examines the impact of Hofstede’s cultural variables (power distance, individualism, masculinity, uncertainty avoidance) on the level of counterfeiting in European countries. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:4/2006&r=reg |
| By: | João Manoel Pinho de Mello (Department of Economics PUC-Rio.); Eduardo Zilberman (Department of Economics, New York University) |
| Abstract: | While most economic studies of crime have focused on its determinants, we study the reverse question: does crime affect economic behavior? Being such an important social phenomenon, one would expect crime to affect economic decisions. Using local data on crime rates and savings per capita in a high-crime environment, we document a striking empirical relationship: crime induces savings. Our paper is one of the first to successfully relate crime to an economic outcome. This result is robust to an extensive sensitivity analysis, which include: 1) controlling to a large set of demographic covariates; 2) accounting for the fact that crime and savings may be determined jointly; 3) measuring savings in different ways; 4) accounting for the presence of possible outliers; 5) weighting the data according to population; 6) accounting for spatial correlation; and, finally, 7) estimating the model for different sub-samples of cities. Our estimates indicate that only property, not violent, crime induces savings, which is consistent with the theoretical explanations on why crime would increase thriftiness |
| Keywords: | Crime, Economic Behavior, Savings |
| JEL: | D00 D91 R11 Z19 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:524&r=reg |
| By: | Randolph Luca Bruno |
| Abstract: | This paper presents a model of Rule of Law in which a continuum of agents plays against the State for the appropriation of the economic assets of a stylised economy. The model shows how each agent can either challenge the State or acquiesce, with the latter having the choice of either protecting property rights or abandoning the economy to anarchy. Players' payoffs are affected by strategic complementarities, not only between State and agents but also among agents themselves. As a consequence of this, a Coordination Failure is generated. The solution of the game is given by two Pareto-ranked Nash equilibria emerging from the context. Introducing idiosyncratic information and sequential play generates a unique equilibrium, according to the global game approach. On the one hand, this model predicts that high uncertainty and sunk costs in law enforcement have a negative effect, pushing the economy towards a Pareto-dominated equilibrium. On the other hand, the high value given to the economy's assets (embedded social norms) has a positive influence, leading to a Pareto-dominant equilibrium. |
| Keywords: | Rule of Law, Coordination Failure, Global Games |
| Date: | 2006–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2006/16&r=reg |
| By: | Luis G. González-Morales |
| Abstract: | A simple contract-theoretic model is used to show that, in a democratic system, positive political rents and efficient provision of public goods can characterize an equilibrium in the political contest. Moreover, this equilibrium is stable under the assumption that a fraction of the political rents can be shared with a subgroup of voters through corporativist arrangements. These features correspond fairly well to the presidential and corporativist political system of post-revolutionary Mexico. |
| URL: | http://d.repec.org/n?u=RePEc:mik:wpaper:01_05&r=reg |
| By: | Eichhorst, Werner (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Konle-Seidl, Regina (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]) |
| Abstract: | "Employment protection legislation, unemployment benefits and active labor market policy are Janus-faced institutions. On the one hand they are devices of insurance against labor market risk that provide income and employment security. On the other hand they influence the capacities of labor markets to adapt to changing economic conditions since institutional features of the welfare state also affect actors' economic adaptation strategies. Insufficient labor market adaptability results in higher and more persistent unemployment. Hence, in order to increase the adaptability of European labor markets, reforms had to address these closely interacting policy areas. The first aim of the paper is to describe recent reforms of employment protection, unemployment insurance and active labor market policies in different European welfare states (Denmark, Sweden, the United Kingdom, Switzerland, the Netherlands, Spain and Germany). The paper shows whether and to what extent national policy patterns converge in the direction of a new balance of flexibility and security with employment protection being eased and labor market policies being 'activated' through a combination of 'carrots and sticks'. Secondly, in terms of the political economy of welfare state reforms, the paper will answer the question whether consistent reforms of the three institutions are more likely in political systems characterized by relative strong government and/or social partnership since such institutional prerequisites may favor 'package deals' across policy areas." (author's abstract, IAB-Doku) ((en)) |
| Keywords: | aktivierende Arbeitsmarktpolitik, Sozialpolitik - Reform, Sozialstaat - internationaler Vergleich, Arbeitsschutzpolitik, Beschäftigungssicherung, Arbeitslosenunterstützung, Sozialstaat, Regulierung, institutionelle Faktoren, politisches System, politischer Wandel, Dänemark, Schweden, Großbritannien, Schweiz, Niederlande, Spanien, Bundesrepublik Deutschland |
| Date: | 2005–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:200519&r=reg |