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on Regulation |
| By: | Luigi Zingales (University of Chicago, NBER & CEPR) |
| Abstract: | The U.S. system of security law was designed more than 70 years ago to regain investors’ trust after a major financial crisis. Today we face a similar problem. But while in the 1930s the prevailing perception was that investors had been defrauded by offerings of dubious quality securities, in the new millennium, investors’ perception is that they have been defrauded by managers who are not accountable to anyone. For this reason, I propose a series of reforms that center around corporate governance, while shifting the focus from the protection of unsophisticated investors in the purchasing of new securities issues to the investment in mutual funds, pension funds, and other forms of asset management. |
| Keywords: | U.S. Security Law, Securities Regulation, Trust |
| JEL: | G2 G28 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.7&r=reg |
| By: | Sabrina R. Pellerin; John R. Walter; Patricia E. Wescott |
| Keywords: | Financial services industry |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:09-08&r=reg |
| By: | Maegli, Martin; Jaag, Christian |
| Abstract: | The various actors in regulated industries relate to each other within a broader institutional framework, i.e. by way of formal and informal rules. An important role in the implementation of liberalization processes is given to the regulation and thus to regulatory institutions. Regulation should have positive effect on social welfare. But state intervention also causes costs which we call costs of regulatory governance. These costs result from negative consequences caused by unnecessary regulatory requirements or from the implementation of inappropriate regulatory instruments. According to new institutional economics, these costs will depend upon the formal and informal rules among the involved actors, upon the allocation of property rights among these actors, as well as upon the various principal-agent or more generally contractual relationships among these actors. In this article we define an analytical framework of costs of regulatory governance. We distinguish between direct and indirect costs of regulation: Direct costs occur in relation with the institutional design of the regulatory framework and the behavior of actors. Whereas the indirect costs arise because of false incentives and finally turn out in an inefficient supply of goods and services. Using the example of the Swiss postal market we give an outline of a possible application of the framework. |
| Keywords: | Regulation; Postal Sector; Regulatory Governance Costs; New Institutional Economics |
| JEL: | D23 L51 L87 K23 D61 |
| Date: | 2009–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:15309&r=reg |
| By: | Georg Götz (Justus-Liebig-University Gießen, Department of Economics) |
| Abstract: | This paper reexamines the effect of the regulatory regime on both penetration and coverage of broadband access to the internet. The framework also allows for an evaluation of different public policy measures such as subsidization of broadband demand and supply. A welfare analysis asks what the optimal regulatory regime is and whether and how high-speed access to the internet should be subsidized. Using an approach similar to Valletti et al. (2002), the paper highlights the importance of population density for whether firms invest to provide internet access. The analysis reveals a trade-off between coverage and penetration. |
| Keywords: | Broadband, coverage, penetration, investment, population density |
| JEL: | L51 L96 L12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:200924&r=reg |
| By: | Fausto Panunzi (Università Bocconi); Andrew Ellul (Indiana University); Marco Pagano (University of Naples Federico II, CSEF, EIEF and CEPR) |
| Abstract: | Entrepreneurs may be constrained by the law to bequeath a minimal stake to non-controlling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of the permissiveness of inheritance law and data for 10,245 firms from 32 countries over the 1990-2006 interval, we find that stricter inheritance law is associated with lower investment in family firms, while it leaves investment unaffected in non-family firms. Moreover, as predicted by the model, inheritance law affects investment only in family firms that experience a succession. |
| Keywords: | Succession, Family Firms, Inheritance Law, Growth, Investment |
| JEL: | G32 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.6&r=reg |
| By: | Federico M. Mucciarelli |
| Abstract: | To avoid the cumulative application of takeover regulation of more jurisdictions, it is common practice to exclude from the offer shareholders resident in countries adopting extraterritorial conflict rules. Among such countries, the most significant case is that of US securities regulation: according to US case-law, in order to avoid the application of US takeover regulation and anti-fraud provisions, bidders should completely exclude any publicity of the offer in the US or to US resident and consider acceptances from US residents as void. However, such restrictions could be at odds with the principle of equal treatments of target’s shareholders, provided for by the EU Takeover Directive. In the paper, I argue that only restrictions to dissemination could be reconciled with the equality principle. On the contrary, restrictions to acceptance represent a clear violation of such principle, which can be admitted only if the cumulative application of US law would make the offer unfeasible. |
| Keywords: | Cross-border tender offers; choice-of-law; US securities law; EC Takeover Directive; exclusion of US holders |
| JEL: | K22 K33 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:mod:wcefin:09051&r=reg |
| By: | Astrid Cullmann; Jens Schmidt-Ehmcke; Petra Zloczysti |
| Abstract: | This paper assesses the relative efficiency of knowledge production in the OECD using a nonparametric DEA approach. Resources allocated to R&D are limited and should therefore be used efficiently given the institutional and legal constraints. This paper presents efficiency scores based on an intertemporal frontier estimation for the period 1995 to 2004 and analyzes the impact of the regulatory environment using the single bootstrap procedure suggested by Simar and Wilson (2007). The empirical evidence supports the hypothesis that barriers to entry, aimed at reducing competition, lower research efficiency by attenuating the incentive to innovate and to allocate resources efficiently. |
| Keywords: | R&D efficiency, data envelopment analysis, truncated regression, regulation |
| JEL: | C14 C24 L50 O31 O57 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp883&r=reg |
| By: | Jan Rommel (Katholieke Universiteit Leuven); Joery Matthys (Katholieke Universiteit Leuven); Koen Verhoest (Katholieke Universiteit Leuven) |
| Abstract: | The objective of the Flemish database is to determine the current level of proliferation of regulatory bodies and to map how regulatory regimes are structured (i.e. what kind of organizations are involved and what are their characteristics?). This paper explores whether there are ‘groups’ of regulators who share certain characteristics with other members of the same group, but differ from other groups. In specific, we test whether the sector in which a body is active and the level of government to which it belongs, have an impact on the organisational form of the body and the tasks it performs. We find that economic regulators differ significantly from other areas. They are more insulated from politicians, are more specialised and seem to have a relatively strong legal mandate. The level of government seems to be a relevant explanatory factor as well. Federal bodies are more insulated from government than other levels. In addition, they are more specialised in regulation and have a rather limited legal mandate. The results confirm the relevance of comparing different regulatory areas and levels of government. |
| Date: | 2009–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:200911&r=reg |
| By: | Auriol, Emmanuelle; Biancini, Sara |
| Abstract: | The paper studies the impact of market integration on investment incentives in non-competitive industries. It distinguishes between investment in transportation and production cost-reducing technologies. Each domestic firm is controlled by a national regulator in a common market made of two countries. When public funds are costly, and production costs in the two countries are not very different, business stealing effect decreases welfare in both countries. Welfare increases in both countries when the difference in production costs is large enough. Market integration tends to increase the level of sustainable investment in cost-reducing technology compared to autarky. This is in contrast with the systematic underinvestment problem arising for transportation facilities. Free-riding reduces the incentives to invest in these public-good components, while business-stealing reduces the capacity for financing new investment. |
| Keywords: | competition; Investment; market integration; regulation |
| JEL: | F12 F15 L43 L51 R53 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7296&r=reg |
| By: | Juan-Angel Jimenez-Martin (Dpto. de Fundamentos de Análisis Económico II, Universidad Complutense); Michael McAleer; Teodosio Pérez-Amaral (Dpto. de Fundamentos de Análisis Económico II, Universidad Complutense) |
| Abstract: | The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of these models are used to determine capital requirements and associated capital costs of ADIs, depending in part on the number of previous violations, whereby realised losses exceed the estimated VaR. In this paper we define risk management in terms of choosing sensibly from a variety of risk models, discuss the selection of optimal risk models, consider combining alternative risk models, discuss the choice between a conservative and aggressive risk management strategy, and evaluate the effects of the Basel II Accord on risk management. We also examine how risk management strategies performed during the 2008-09 financial crisis, evaluate how the financial crisis affected risk management practices, forecasting VaR and daily capital charges, and discuss alternative policy recommendations, especially in light of the financial crisis. These issues are illustrated using Standard and Poor’s 500 Index, with an emphasis on how risk management practices were monitored and encouraged by the Basel II Accord regulations during the financial crisis. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:0918&r=reg |
| By: | Djamel Kirat (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Ibrahim Ahamada (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | In order to comply with their commitments under the Kyoto Protocol, France and Germany participate to the European Union Emission Trading Scheme (EU ETS) which concerns predominantly electricity generation sectors. In this paper we seek to know if the EU ETS gives appropriate economic incentives for an efficient and strong system in line with Kyoto commitments. Because if so electricity producers in these countries should include the price of carbon in their costs functions. After identifying the different sub periods of the EU ETS during its pilot phase (2005-2007), we model the prices of various electricity contracts and look at their volatilities around their fundamentals while evaluating the correlation between the electricity prices in the two countries. We find that electricity producers in both countries were constrained to include the carbon price in their cost functions during the first two years of operation of the EU ETS. During this period, German electricity producers were more constrained than their French conterparts and the inclusion of the carbon price in the cost function of electricity generation has been so much more stable in Germany than in France. Furthermore, the European market for emission allowances has increased the market power of the historical French electricity producer and has greatly contributed to the partial alignment of the wholesale price of electricity in France with those of Germany. |
| Keywords: | Carbon Emission Trading, multivariate GARCH models, structural break, non parametric approach, energy prices. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00384496_v1&r=reg |
| By: | Coppier, Raffaella (Department of Economic and Financial Institutions, University of Macerata, Macerata (MC), Italy); Costantini, Mauro (Department of Economics, University of Vienna, Vienna, Austria); Piga, Gustavo (Department of Economics and Institutions, University of Rome Tor Vergata, Roma, Italy) |
| Abstract: | This paper analyzes the existing relationship between economic growth and the monitoring of corruption and examines the possible outcome of the implementation of a State reform in order to weed out corruption. Growth is always higher when monitoring is high and therefore corruption eradicated. But growth declines when monitoring against corruption is not too high, say intermediate, so much that it makes an equilibrium with corruption and little monitoring a more growth-enhancing solution. It is also stressed that when reforms to combat corruption appear to be implausible, they tend to curb most productive investments. The model is estimated using a dynamic panel data approach for Italy. Italy has been plagued by corruption and in the late 80s and early 90s several scandals erupted which led to the well-known "Clean Hands" (Mani pulite) inquiries. Empirical results support the theoretical model. |
| Keywords: | Corruption, growth, reform, panel data |
| JEL: | C33 D73 K42 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihsesp:238&r=reg |
| By: | Cingano, Federico (Bank of Italy); Leonardi, Marco (University of Milan); Messina, Julián (University of Girona); Pica, Giovanni (University of Salerno) |
| Abstract: | This paper analyzes the joint effect of EPL and financial market imperfections on investment, capital-labour substitution, labour productivity and job reallocation in a cross-country framework. In the spirit of Rajan and Zingales (1998) and Ciccone and Papaioannou (2006), we exploit variation in the need for reallocation at the sectoral and aggregate level to assess the average effect of EPL on firms' policies. Then, exploiting firm-level information we study if the effect of EPL is stronger in firms with lower levels of internal resources. We find that, on average, EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors. The reduction in the capital-labour ratio is less pronounced in firms with higher internal resources, suggesting that financial constraints exacerbate the negative effects of EPL on capital deepening. |
| Keywords: | labor market imperfections, financial market imperfections, capital-labor substitution |
| JEL: | J21 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4158&r=reg |
| By: | Nicholas Economides (Stern School of Business, NYU) |
| Abstract: | I discuss and assess the various standards for establishing liability for loyalty discounts offered under a requirement contract. I find that the standard proposed by the Antitrust Modernization Commission is likely to result in many cases of violation that are not caught. The safe harbor defined by the AMC would permit activity that is in fact anticompetitive. I propose instead a structured rule of reason test that relies on consumers’ surplus comparisons under the loyalty /requirement practice and the but-for world. The proposed standard does not have a safe harbor based on a price/cost comparison because such comparisons do not generally correspond to consumers’ surplus comparisons. |
| Keywords: | bundling, loyalty discounts, requirement contracts, monopolization, antitrust |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0902&r=reg |
| By: | Bruce I. Carlin; Simon Gervais |
| Abstract: | Given the importance of sound advice in retail financial markets and the fact that financial institutions outsource their advice services, what legal rules maximize social welfare in the market? We address this question by posing a theoretical model of retail markets in which a firm and a broker face a bilateral hidden action problem when they service clients in the market. All participants in the market are rational, and prices are set based on consistent beliefs about equilibrium actions of the firm and the broker. We characterize the optimal law within our modeling context, and derive how the legal system splits the blame between parties to the transaction. We also analyze how complexity in assessing clients and conflicts of interest affect the law. Since these markets are large, the implications of the analysis have great welfare import. |
| JEL: | G18 K2 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14972&r=reg |