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on Regulation |
| By: | Strauss, Jason David |
| Abstract: | The variation in the degree of price regulation in the property-liability insurance market in Canada varies across time and space, creating an opportunity to test a recurring theory in regulatory economics: that price regulated firms have higher levels of financial leverage. Using an instrumental variable for the stringency of price-regulation, this paper utilizes a panel data set of Canadian property-liability insurers over ten years of time, 1997-2006. The results support the theory but do not conclude on whether the increase in financial leverage is a strategic decision or a natural reaction to worsening business conditions brought-on by price-regulation. |
| Keywords: | Price Regulation; Insurance; Financial Leverage; Capital Structure; Bankruptcy |
| JEL: | G22 G32 G28 G33 |
| Date: | 2008–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10845&r=reg |
| By: | Ojo, Marianne |
| Abstract: | Over the years, there has been a shift from a wide command-and-control style of supervision whereby the regulator imposes detailed rules with which regulators supervise to one which consists of risk based regulatory strategies. ‘Enforced Self Regulation’, a regulatory strategy whereby negotiation takes places between the State and the individual firms, lies between the command-and-control style of supervision and meta risk regulation in that firms are still required to regulate but according to their own models. It differs from the traditional command-and-control style of bank supervision in that firms and not the regulator, are required to regulate. It is similar to meta-risk regulation in that the individual firm’s model is taken into consideration in regulating such firms. Whilst the merits and disadvantages of the individual regulatory strategies are considered, this paper concludes that all regulatory strategies should take into consideration the importance of management responsibilities – both on individual and corporate levels. |
| Keywords: | bank;regulation;risk;command;control |
| JEL: | K2 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10290&r=reg |
| By: | Larry Karp (University of California, Berkeley and Giannini Foundation) |
| Abstract: | Disagreement over the form of regulation of greenhouse gasses motivates a comparison of market based and command and control policies. More efficient policies can increase aggregate marginal abatement cost, resulting in higher emissions. Multiple investment equilibria and "regulatory uncertainty" arise when firms anticipate command and control policies. Market based policies eliminate this uncertainty. Command and control policies cause firms to imitate other firms' investment decisions, leading to similar costs and small potential efficiency gains from trade. Market based policies induce firms to make different investment decisions, leading to different costs and large gains from trade. We imbed the regulatory problem in a "global game" and show that the unique equilibrium to that game is constrained socially optimal. |
| Keywords: | tradable permits, coordination games, multiple equilibria, global games, regulatory uncertainty, climate change policies, California AB32, |
| Date: | 2008–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:agrebk:1063&r=reg |
| By: | Brennan, Timothy J. (Resources for the Future) |
| Abstract: | The distribution grid for delivering electricity to the user has been paid for as part of the charge per kilowatt-hour that covers the cost of the energy itself. Conservation advocates have promoted the adoption of policies that “decouple” electric distribution company revenues or profits from how much electricity goes through the lines. Their motivation is that usage-based pricing leads utilities to encourage use and discourages conservation. Because decoupling divorces profits from conduct, it runs against the dominant finding in regulatory economics in the last twenty years -— that incentive-based regulation outperforms rate-of-return. Even if distribution costs are independent of use, some usage charges can be efficient. Price-cap regulation may distort utility incentives to inform consumers about energy efficiency -— getting more performance from less electricity. Utilities will subsidize efficiency investments, but only when prices are too low. Justifying policies to subsidize energy efficiency requires either prices that are too low or consumers who are ignorant. |
| Keywords: | decoupling, price caps, electricity, energy efficiency, conservation |
| JEL: | L51 L94 Q41 |
| Date: | 2008–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-08-27&r=reg |
| By: | Jan Myslivecek |
| Abstract: | I compare certification and self-regulation, two widely used quality assurance mechanisms in markets where consumers do not observe the quality of goods. Certification is a mechanism in which an external firm oers a certificate to producers who undergo a testing procedure, issues the certificate if they meet the certifier's standards and collects the certification fee. Self-regulation is a mechanism in which a club of firms in the industry adhere (or not) to a self-imposed code of conduct and benefit from the club's reputation. I show that if the testing technology is perfect and costless, the choice of standards and fees by the certifying organization (CO) is welfare inferior, while the self-regulatory organization (SRO) chooses a welfare optimal fee, and I identify conditions under which the SRO also chooses optimal standards. If the testing technology is costly and imperfect, this result is not necessarily valid and depends on the dierence between the costs of the testing technology available to the CO and SRO. |
| Keywords: | Quality assurance, asymmetry of information, certication, self-regulation. |
| JEL: | D02 D45 D71 D72 D82 L14 L15 L21 L38 L43 L51 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp361&r=reg |
| By: | Amihai Glazer; Stef Proost |
| Abstract: | Given the difficulty of monitoring, and even more so of enforcing, International Environmental Agreements, it is surprising that they are signed and implemented. This paper offers a theoretical model, which addresses this issue. The focus is on informational and coordination problems. A country which is unsure about the benefits of environmental policy may find that the benefits are higher the greater the number of other countries which lean towards taking action. Whereas each country may individually take weak environmental action, in equilibrium several countries may take strong action if they expect others to. An International Environmental Agreement can thus be selfenforcing. Such effects can appear even if international environmental spillovers are absent, and even if monitoring and enforcement are infeasible. Our approach can explain additional phenomena: why a country known to care little about the environment may deeply influence other countries if it takes strong environmental action, why lags may appear between the signing of an agreement and its implementation, and how requirements for approval by several bodies within a country can increase support for environmental action. |
| Keywords: | Environmental policy, international agreements, signaling, regulation |
| JEL: | Q58 D82 L51 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0814&r=reg |
| By: | Patrick Honohan |
| Abstract: | Overconfidence on the part of bankers and regulators in mechanical risk management models is an important and distinctive driver of bank failures in the current crisis. This paper illustrates the process by drawing on brief case studies of a handful of the biggest failures and losses. There are significant implications for a more holistic and less mechanical approach to risk management and prudential regulation. |
| Date: | 2008–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp263&r=reg |
| By: | Gordon Rausser (University of California, Berkeley); Stephen Hamilton (Cal Poly State University, San Luis Obispo); Marty Kovach (OnPoint Analytics); Ryan Stifter (OnPoint Analytics) |
| Abstract: | The closure of the Hawaiian longline swordfish fishery over the period 2001-2004, which was motivated by the protection of endangered sea turtles, created the elements of a natural experiment that allows identification of the market transfer of catch (and sea turtle by-catch) to other regions. This paper exploits the fact that the vessels in the Hawaiian longline fishery sell their catch in the US fresh swordfish market to analyze the pattern of changes in US fresh and frozen swordfish consumption both before and after the closure regulation was imposed. The mechanisms by which any unintended consequences on endangered sea turtles in other fishery locations in the world are shown to take place through the US swordfish market. At the estimated annual market transfer, a bootstrap analysis of the probability distribution of by-catch rates indicates that the regulation led to an additional 2,882 sea turtle interactions at the sample means. |
| Keywords: | Common property, fishery bycatch, market transfer, |
| Date: | 2008–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:agrebk:1053&r=reg |
| By: | Patrick Honohan |
| Abstract: | The 2007-8 banking crisis in the advanced economies has exposed deficiencies in risk management and prudential regulation approaches that rely too heavily on mechanical, albeit sophisticated, risk management models. These have aggravated private and economic losses, while perhaps protecting the taxpayer from bearing quite as high a share of the direct costs as in typical crises of the past. Policymakers and bankers need to recognize the limitations of rules-based regulation and restore a more discretionary and holistic approach to risk management. |
| Date: | 2008–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp262&r=reg |
| By: | Andreas Stephan (Centre for Competition Policy, University of East Anglia) |
| Abstract: | The combination of leniency programmes, high sanctions, complaints from customers and private actions for damages, has proven very successful at uncovering and punishing cartel agreements in the US. Countless jurisdictions are being encouraged to adopt these ‘conventional’ enforcement tools, in the absence of an international competition authority. The purpose of this paper is to widen the debate on cartel enforcement by identifying three issues which can undermine their effectiveness in some jurisdictions: (1) Corruption and organised crime; (2) Social norms that are sympathetic to collusive practices; (3) Collectivist business cultures built on personal relationships. |
| Keywords: | cartels, leniency programmes, enforcement, corruption, organised crime, social norms, collectivism |
| JEL: | D21 K21 K42 L40 Z1 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-29&r=reg |
| By: | M. Eslava, J. Haltwanger, A. Kugler, M. Kugler (Wilfrid Laurier University) |
| Abstract: | We analyze employment and capital adjustments using plant data from the Colombian Annual Manufacturing Survey. We estimate adjustment functions for capital and labor as a non-linear function of the gaps between desired and actual factor levels, allowing for interdependence in adjustments of the two factors. In addition to non-linear employment and capital adjustments in response to market fundamentals, we find that capital shortages reduce hiring and labor surpluses reduce capital shedding. We also find that after factor market deregulation in Colombia in 1991, factor adjustment hazards increased on the job destruction and capital formation margins. Finally, we find that completely eliminating frictions in factor adjustment would yield a substantial increase in aggregate productivity through improved allocative efficiency. Yet, the actual impact of the Colombian deregulation on aggregate productivity through factor adjustment was modest. |
| Keywords: | Reallocation, joint factor adjustment, irreversibility, deregulation |
| JEL: | E22 E24 O11 C14 J63 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:wlu:wpaper:eg0059&r=reg |