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on Regulation |
| By: | Hans Degryse; Steven Ongena |
| Abstract: | We review how technological advances and changes in regulation may shape the (future) geographical scope of banking. We first review how both physical distance and the presence of borders currently affect bank lending conditions (loan pricing and credit availability) and market presence (branching and servicing). Next we discuss how technology and regulation have altered this impact and analyse the current state of the European banking sector. We discuss both theoretical contributions and empirical work and highlight open questions along the way. We draw three main lessons from the current theoretical and empirical literature: (1) Bank lending to small businesses in Europe may be characterized both by (local) spatial pricing and resilient (regional and/or national) market segmentation; (2) Because of informational asymmetries in the retail market, bank mergers and acquisitions seem the optimal route of entering another market, long before cross-border servicing or direct entry are economically feasible; (3) Current technological and regulatory developments may to a large extent remain impotent in further dismantling the various residual but mutually reinforcing frictions in the retail banking markets in Europe. We conclude the paper by offering pertinent policy recommendations based on these three lessons. |
| Keywords: | geographical scope, banking, lending relationships, technology, and regulation. |
| JEL: | G21 L11 L14 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0408&r=reg |
| By: | Griffith, Rachel; Harmgart, Heike |
| Abstract: | We are interested in evaluating the impact of restrictive planning regulation on entry into the UK grocery retail industry. We estimate a model similar to Bresnahan and Reiss (1991) where we allow for multiple store formats. We find that more restrictive planning regulation reduces the number of large format supermarkets in equilibrium. However, the impact is overstated if variation in demographic characteristics across markets is not also controlled for. Our estimates suggest that restrictive planning regulation leads to a loss to consumers of up to £10m per annum. This cost must be offset against any benefits that arise, e.g. due to reduced congestion. |
| Keywords: | entry; land use regulation; retail |
| JEL: | L11 L52 L81 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6713&r=reg |
| By: | Schivardi, Fabiano; Viviano, Eliana |
| Abstract: | The 1998 reform of the Italy's retail trade sector delegated the regulation of entry of large stores to the regional governments. We use the local variation in regulation to determine the effects of entry barriers on firms' performance for a representative sample of retailers. We address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. We also control for differences in trends and for area-wide shocks. We find that entry barriers are associated with substantially larger profit margins and substantially lower productivity of incumbent firms. Liberalizing entry has a positive effect on investment in ICT. Consistently, more stringent entry regulation results in higher inflation: lower productivity coupled with larger margins results in higher consumer prices. |
| Keywords: | entry barriers; productivity growth; technology |
| JEL: | L11 L5 L81 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6637&r=reg |
| By: | Reisinger, Markus; Schnitzer, Monika |
| Abstract: | This paper develops a model of successive oligopolies with endogenous market entry, allowing for varying degrees of product differentiation and entry costs in both markets. Our analysis shows that the downstream conditions dominate the overall profitability of the two-tier structure while the upstream conditions mainly affect the distribution of profits. We compare the welfare effects of upstream versus downstream deregulation policies and show that the impact of deregulation may be overvalued when ignoring feedback effects from the other market. Furthermore, we analyze how different forms of vertical restraints influence the endogenous market structure and show when they are welfare enhancing. |
| Keywords: | Deregulation; Free Entry; Price Competition; Product Differentiation; Successive Oligopolies; Two-Part Tariffs; Vertical Restraints |
| JEL: | D43 L13 L40 L50 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6730&r=reg |
| By: | Stef Proost; Kurt Van Dender |
| Abstract: | In this paper we compare the effectiveness and welfare effects of alternative fuel efficiency, environmental and transport policies for a given urban area. The urban transport activities are represented as a set of interrelated markets, one for each mode of transport and type of vehicle. For each market, four different marginal external costs are computed in the present equilibrium: air pollution, accidents, noise and congestion. The gap between marginal social costs and prices shows that congestion and unpaid parking are the dominant sources of inefficiencies. Air pollution costs are significant as well. The effects of a typical air quality policy (regulation of car emission technology) and two typical fuel based policies (minimum fuel efficiency policy and fuel taxes) are compared with the effects of three alternative transport policies (full external cost pricing, cordon pricing, parking charges). Regulation of emission technology and of fuel efficiency do not necessarily lead to welfare gains, whereas transport pricing policies yield substantial gains for the urban area under study. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces9831&r=reg |
| By: | Edward Calthrop; Stef Proost |
| Abstract: | On-street urban parking spaces are typically regulated by either a meter fee or a time restriction. This paper shows that, when the off-street parking market is perfectly competitive, meter fees are more efficient than time restrictions. When on-street parking is free, albeit subject to a time restriction, too many drivers choose to engage in socially wasteful searching for on-street spaces. In contrast, with a meter fee, the relative benefit of parking on-street is reduced, and total search can be minimised. A linear meter fee structure is shown to be optimal. A simple policy prescription is also proposed. Set on-street meter fees equal to off-street parking fees. Finally, a simple numerical model calibrated to central London suggests that the use of optimal meter fees increases parking welfare vy around 5% over an optimal time restriction. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0021&r=reg |
| By: | de Frutos, Maria-Angeles; Fabra, Natalia |
| Abstract: | Several regulatory authorities worldwide have recently imposed forward contract obligations on electricity producers as a way to mitigate their market power. In this paper we investigate how such contractual obligations affect equilibrium bidding in electricity markets, or in any other auction-based market. For this purpose, we introduce forward contracts in a uniform-price multi-unit auction model with complete information. We find that forward contracts are pro-competitive when allocated to relatively large and efficient firms; however, they might be anti-competitive otherwise. We also show that an increase in contract volume need not always be welfare improving. From a methodological point of view, we aim at contributing to the literature on multi-unit auctions with discrete bids. |
| Keywords: | antitrust remedies; discrete bids; electricity; Forward contracts; market power; multi-unit auctions; simulations |
| JEL: | G13 L13 L94 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6756&r=reg |
| By: | Sandra Rousseau; Stef Proost |
| Abstract: | In this paper we incorporate monitoring and enforcement aspects in the choice of environmental policy instruments in a general equilibrium framework. Goulder et al. (J.Pub.Econ., 1999) look into the choice of policy instruments in the presence of distortionary taxes. We extend this model by no longer assuming full compliance from firms. A violating firm is caught with a certain probability by the inspection agency. Once a violator is detected, he always has to pay a fine. With a positive, finite expected fine and a probability of detection smaller than unity, there will always be a certain proportion of noncompliance in the economy. We calculate the gross efficiency costs of different policy instruments (emission tax, output tax, tradable permits and technology mandate). We illustrate the model for different price instruments (emission tax, output tax and tradable permits). We find that the relative inefficiency of grandfathered tradable permits vis-à-vis emission taxes found in a second-best setting with perfect compliance, is strongly decreased with imperfect compliance. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0104&r=reg |
| By: | Juan Carlos Rojo Cagigal |
| Abstract: | The paper analyses the legal transfer of formal rules regulating stock markets in Spain between 1800 and 1936. We argue that the transfer of French legislation in the 1830s provoked a “transplant effect”, which generated serious distortions in Spanish financial markets. As a result, Spain developed a unique system in which official French style stock markets coexisted with Anglo-Saxon style free markets and small traditional markets, reminiscent of the ancien regime. This unique schism of systems reflects the result of multiple natural experiments whereby each region constituted its own stock market system. Diverse economic scenarios and path-dependence processes determined different institutional settings. We find that the unparalleled Spanish system was the result of lacking central power, persistence of institutional inertia, and the diversity of Spain´s geographical economy. |
| Keywords: | Stock markets, Exchanges, Commercial law, Comparative law, Legal origins, Legal transfer, Legal transplant, Rule of law, Spain |
| JEL: | N23 N24 N43 N44 K20 K22 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:wp08-03&r=reg |
| By: | Acharya, Viral V; Amihud, Yakov; Litov, Lubomir P. |
| Abstract: | We propose that stronger creditor rights in bankruptcy reduce corporate risk-taking. Employing country-level data, we find that strong creditor rights are associated with a greater propensity of firms to engage in diversifying mergers, and this propensity changes in response to changes in the country creditor rights. Also, in countries with stronger creditor rights companies’ operating risk is lower, and acquirers with low-recovery assets prefer targets with high-recovery assets. These relationships are strongest in countries where management is dismissed in reorganization, suggesting an agency-cost effect. Our results suggest that there might be a "dark" side to strong creditor rights in that they can induce costly risk avoidance in corporate policies. Thus, stronger creditor rights may not necessarily be optimal. |
| Keywords: | Bankruptcy; Default; Diversification; Managerial turnover; Recovery |
| JEL: | G31 G32 G33 G34 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6697&r=reg |