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on Regulation |
| By: | Philippe Aghion; Yann Algan; Pierre Cahuc; Andrei Shleifer |
| Abstract: | In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document this correlation, and present a model explaining it. In the model, distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria. A key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt. We test this and other implications of the model using country- and individual-level data on social capital and beliefs about government’s role, as well as on changes in beliefs and in trust during the transition from socialism. |
| JEL: | K2 P5 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14648&r=reg |
| By: | Ines Drumond (CEMPRE and Faculdade de Economia, Universidade do Porto); José Jorge (CEMPRE and Faculdade de Economia, Universidade do Porto) |
| Abstract: | This paper assesses the potential procyclical effects of Basel II capital requirements by evaluating to what extent those effects depend on the composition of banks' asset portfolios and on how borrowers' credit risk evolves over the business cycle. By developing a heterogeneous-agent general equilibrium model, in which firms' access to credit depends on their financial position, we find that regulatory capital requirements, by forcing banks to finance a fraction of loans with costly bank capital, have a negative effect on firms' capital accumulation and output in steady state. This effect is amplified with the changeover from Basel I to Basel II, in a stationary equilibrium characterized by a significant fraction of small and highly leveraged firms. In addition, to the extent that it is more costly to raise bank capital in bad times, the introduction of an aggregate technology shock into a partial equilibrium version of the model supports the Basel II procyclicality hypothesis: Basel II capital requirements accentuate the bank loan supply effect underlying the bank capital channel of propagation of exogenous shocks. |
| Keywords: | Business Cycles, Procyclicality, Financial Constraints, Bank Capital Channel, Basel II, Heterogeneity |
| JEL: | E44 E32 G28 E10 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:307&r=reg |
| By: | Ronel Elul; Piero Gottardi |
| Abstract: | In many countries, lenders are restricted in their access to information about borrowers’ past defaults. We study this provision in a model of repeated borrowing and lending with moral hazard and adverse selection. We analyze its effects on borrowers’ incentives and access to credit, and identify conditions under which it is optimal. We argue that “forgetting” must be the outcome of a regulatory intervention by the government. Our model’s predictions are consistent with the cross-country relationship between credit bureau regulations and provision of credit, as well as the evidence on the impact of these regulations on borrowers’ and lenders’ behavior. |
| Keywords: | Bankruptcy, Information, Incentives, Fresh Start |
| JEL: | D86 G33 K35 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2008/41&r=reg |
| By: | Akhtar, S.; Bannier, C.; Tyrell, M.; Elizalde, A.; Janda, K.; Lind, G. |
| Abstract: | This paper will describe and analyse the development of Basel II Capital Accord and will focus on the use of external ratings in the Standardized Approach in Basel II. Furthermore it will examine the problem of adverse selection which appears in Basel II as a result from the proposal for the use of external ratings in determining the risk weights in the standardized approach. The paper will also attempt to find possible solutions to the adverse selection problem by discussing two similar models, and derive implications from them. |
| Keywords: | Basel II; external ratings; adverse selection; rating agencies; standardized approach |
| JEL: | E51 E5 G24 |
| Date: | 2008–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12722&r=reg |
| By: | Harold Houba (VU University Amsterdam); Evgenia Motchenkova (VU University Amsterdam); Quan Wen (Vanderbilt University, Nashville (TN), USA) |
| Abstract: | For a general class of oligopoly models with price competition, we analyze the impact of ex-ante leniency programs in antitrust regulation on the endogenous maximal-sustainable cartel price. This impact depends upon industry characteristics including its cartel culture. Our analysis disentangles the effects of traditional antitrust regulation and the leniency program. Ex-ante leniency programs are effective if and only if these offer substantial rewards to the self-reporting firm. This is in contrast to currently employed programs that are therefore ineffective. |
| Keywords: | Cartel; Antitrust Policy; Antitrust Law; Antitrust regulation; Leniency program; Self-reporting; repeated game |
| JEL: | L41 K21 C72 |
| Date: | 2008–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20080120&r=reg |
| By: | Guy David; Sara Markowitz; Seth Richards |
| Abstract: | This paper analyzes the relationship between postmarketing promotional activity and reporting of adverse drug events by modeling the interaction between a welfare maximizing regulator (the FDA) and a profit maximizing firm. In our analysis demand is sensitive to both promotion and regulatory interventions. Promotion-driven market expansions enhance profitability yet may involve the risk that the drug would be prescribed inappropriately, leading to adverse regulatory actions against the firm. The model exposes the effects of the current regulatory system on consumer and producer welfare. Particularly, the emphasis on safety over benefits distorts the market allocation of drugs away from some of the most appropriate users. We then empirically test the relationship between drug promotion and reporting of adverse reactions using an innovative combination of commercial data on pharmaceutical promotion and FDA data on regulatory interventions and adverse drug reactions. We provide some evidence that increased levels of promotion and advertising lead to increased reporting of adverse medical events for certain conditions. |
| JEL: | I1 K0 K2 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14634&r=reg |
| By: | Cristina Barbot (CETE, Faculdade de Economia, Universidade do Porto) |
| Abstract: | Airports and airlines have been increasingly establishing vertical contracts, which have a wide variety of forms. These contracts have important implications for policy issues, namely for regulation and price discrimination legislation. In this paper we develop a model to analyse the effects of three types of vertical contracts, in what regards welfare, pro-competitiveness and the scope for regulation. We find that two types of contracts are anti-competitive, and that in all of them consumers are better-off, though in one of them within conditions regarding operational efficiency. We also conclude that regulation may (or may not) improve welfare depending on the type of contract and that price capping has different effects according to the facility the price of which is capped. Moreover, we find that these agreement’s effects exhibit a trade-off between pro-competitiveness and welfare and between price discrimination and welfare. |
| Keywords: | vertical contracts, regulation, airports, airlines. |
| JEL: | R48 L93 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:por:cetedp:0901&r=reg |
| By: | Ricardo Gonçalves (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto)); Álvaro Nascimento (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto)) |
| Abstract: | NGAs (Next Generation Access Networks) are a challenge to regulators and operators insofar as they require large investments, there is significant uncertainty about the ability to recover costs, and the choice of the appropriate regulatory regime is far from consensual. Regulatory authorities might want to seize the moment and reconsider the mandatory vertical separation of telecommunication firms, without jeopardizing incentives to innovation, investment and welfare. We provide a provocative but simple test for the adequacy of network separation as a regulatory remedy. We propose a decision tree procedure with four steps in order to assess whether network separation is an adequate regulatory response: [1] “Is there significant market power in the market for the provision of access services under NGAs?”; [2] “Are there few vertical complementarities between services along the supply chain?”; [3] “Is functional separation a better regulatory tool than any other alternative?”; and [4] “Is structural separation superior to functional separation?”. A positive answer to the first three questions implies that the regulator should consider functional network separation, whilst the fourth is needed for the structural alternative. |
| Keywords: | Telecommunications networks, Functional separation, Structural separation |
| JEL: | L51 L96 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:cap:wpaper:032009&r=reg |
| By: | Edilio Valentini (Università "G. D'Annunzio" di Chieti-Pescara); Edilio Valentini (Università "G. D'Annunzio" di Chieti-Pescara) |
| Abstract: | This paper addresses the issue of whether the powers of monitoring compliance and allocating tradeable emissions allowances within a federation of countries should be appointed to a unique federal regulator or decentralized to several local regulators. To this end, we develop a two stage game played by environmental regulator(s) and the polluting industries of two countries. Regulator(s) choose the amount of emission allowances to be issued and set the level of monitoring effort to achieve full compliance, while regulated firms choose actual emissions and the number of permits to be held. We identify various, possibly conflicting, spillovers among states in a decentralized setting. We show that cost advantage in favor of local regulators is not sufficient to justify decentralization. Nevertheless, cost differential in monitoring violations can imply lower emissions and greater welfare under a decentralized institutional setting than under a centralized one. However, while a better environmental quality under decentralization is a sufficient condition for higher welfare under the same regime, it is not also a necessary condition. |
| Keywords: | Emissions Trading, Environmental Federalism, Enforcement, Monitoring Cost |
| JEL: | F18 K42 Q53 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2008.97&r=reg |
| By: | Damiani, Mirella; Pompei, Fabrizio |
| Abstract: | The present study examines cross-national and sectoral differences in multifactor productivity growth in sixteen European countries from 1995 to 2005. The main aim is to ascertain the role of flexible employment contracts and collective labour relationships in explaining the ample differentials recorded in the European economy. Research Findings We use the EU KLEMS database for growth accounting and a broad set of indicators of labour regulations, covering two distinct ‘areas’ of labour regulation: employment laws and collective relations laws. This comprehensive approach allow us to consider arrangements that regulate allocation of labour inputs (fixed-term, part-time contracts, hours worked) and of payoff and decision rights of employees. We find that, since 1995, European countries have not followed similar patterns of growth. A large number of variations between European economies are caused by deep differentials in multifactor productivity and part of this heterogeneity is caused by sectoral diversities. We show that, in labour-intensive sectors such as services, fixed-term contracts, which imply shorter-term jobs and lower employment tenures, may discourage investment in skills and have detrimental effects on multifactor productivity increases. We also find that some forms of labour regulation and arrangements that give a ‘voice’ to employees mitigate these perverse effects on efficiency patterns. Employment protection reforms which slacken the rules of fixed-term contracts cause potential drawbacks in terms of low productivity gains. More stringent regulation of these practices, as well as a climate of collective relations, sustain long-term relationships and mitigate these negative effects. |
| Keywords: | productivity; labour regulation; comparative institutions. |
| JEL: | O47 J24 J50 |
| Date: | 2009–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12710&r=reg |
| By: | Miru, Oana Maria; Hetes-Gavra , Roxana; Nicolescu, Ana Cristina |
| Abstract: | The Basel II Agreement is a new stage in the development of prudential regulations. Compared to the initial agreement, Basel I, this one allows a more large and precise analysis of banking risks. The European approach of Basel II requirements aims to offer some common conditions for all the credit institutions. Secondly, in order to achieve the objectives of Basel II, an active implication of the supervisory authorities is needed, as well as a tighter cooperation between them in order to increase the financial integration at the European Union level. In what concerns Romania, that has recently joined the European Union, the implementation of Basel II requirements imply a new series of challenges both for credit institutions and for the Central Bank. These challenges, for the commercial banks, reside in adjusting the risk management techniques and the informational system, training the staff, obtaining the databases, etc. and for the Central Bank in both adapting the surveillance process and elaborating new regulations. This paper tries to analyze the main implications of implementing these requirements, both for the Romanian commercial banks and for the National Bank. |
| Keywords: | banking; prudential regulations; supervision; capital requirements |
| JEL: | E5 E50 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12613&r=reg |