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on Regulation |
| By: | Cherbonnier, Frédéric (Toulouse School of Economics); Rochet, Jean-Charles (Toulouse School of Economics) |
| Date: | 2010–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24168&r=reg |
| By: | di Iasio, Giovanni; Quagliariello, Mario |
| Abstract: | Following a decline in the fundamental risk of assets, the ability of banks to expand the balance sheet under a Value-at-Risk constraint in- creases (as in Adrian and Shin (2010)), boosting the bank’s incentives to provide costly monitoring effort that prevents asset deterioration. On the other hand, high asset demand and prices, eventually, raise the bank’s pay- off in the event of liquidation associated to asset deterioration, jeopardiz- ing incentives. This paper shows that a microprudential regulatory regime that disregards the equilibrium effect of macro variables (asset prices) on micro behavior (effort), performs poorly as low fundamental (exogenous) risk reduces bank’s effort and induces high (endogenous) deterioration risk. This analysis calls for a macroprudential regulatory regime in which the equilibrium feedback effect is fully taken into account by the author- ity in designing incentive compatible capital requirements, providing a theoretical foundation to the countercyclical buffer of Basel III. |
| Keywords: | Macroprudential regulation; financial stability; capital requirement. |
| JEL: | D86 G18 E44 |
| Date: | 2011–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30769&r=reg |
| By: | Augusto de la Torre; Alain Ize |
| Abstract: | Financial crises happen when: (i) nobody really understands what is going on (the collective cognition paradigm); (ii) some understand better and take advantage (the asymmetric information paradigm); (iii) everybody understands but crises are a natural part of the financial landscape (the market segmentation paradigm); or (iv) everybody understands yet fail to act because private and social interests do not coincide (the collective action paradigm). The four paradigms have different and often conflicting prudential policy implications. We propose and discuss three sets of reforms that would give due weight to the insights from the collective action and collective cognition paradigms by: (i) redrawing the regulatory perimeter to internalize systemic risk without promoting dynamic regulatory arbitrage; (ii) introducing a truly systemic liquidity regulation that moves away from a purely idiosyncratic focus on maturity mismatches; and (iii) building up the supervisory function while avoiding the pitfalls of expanded official oversight. |
| Date: | 2011–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:col:000425:008452&r=reg |
| By: | Leonard Nakamura |
| Abstract: | This paper sets forth a discussion framework for the information requirements of systemic financial regulation. It specifically describes a potentially large macro-micro database for the U.S. based on an extended version of the Flow of Funds. I argue that such a database would have been of material value to U.S. regulators in ameliorating the recent financial crisis and could be of aid in understanding the potential vulnerabilities of an innovative financial system in the future. I also suggest that making these data available to the academic research community, under strict confidentiality restrictions, would enhance the detection and measurement of systemic risk. |
| JEL: | G28 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17006&r=reg |
| By: | Sophie Bernard (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | This paper presents a theoretical model of remanufacturing where a duopoly of original manufacturers produces a component of a final good. The specific component that needs to be replaced during the lifetime of the final good creates a secondary market where independent remanufacturers enter the competition. An environmental regulation imposing a minimum level of remanufacturability is also introduced. The main results establish that, while collusion of the firms on the level of remanufacturability increases both profit and consumer surplus, a social planner could use collusion as a substitute for an environmental regulation. However, if an environmental regulation is to be implemented, collusion should be repressed since competition supports the public intervention better. Under certain circumstances, the environmental regulation can increase both profit and consumer surplus. Part of this result supports the Porter Hypothesis, which stipulates that industries respecting environmental regulations can see their profits increase. |
| Keywords: | Remanufacturing, competition, environmental regulation, Porter hypothesis. |
| JEL: | H23 L10 L51 Q53 Q58 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11027&r=reg |
| By: | Nicolas Véron |
| Abstract: | Financial regulation at global level has been high on the G20 agenda. However, financial multipolarity, with the rise of emerging economies, and its impact on decision-making at global level has made global convergence difficult. In this policy brief, the authors, Bruegel Senior Fellow Nicolas Véron and Stéphane Rottier, National Bank of Belgium, explain why now is the time to focus on building stronger global public institutions, ensuring globally consistent financial information, creating globally integrated capital-markets infrastructure and addressing competitive distortions among global capital-market intermediaries to set the foundation for global harmonisation of all aspects of financial regulation. |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polbrf:431&r=reg |
| By: | Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Siciliani, Luigi (University of York); Straume, Odd Rune (University of Minho) |
| Abstract: | In many markets, such as education, health care and public utilities, firms are often profit-constrained either due to regulation or because they have non-profit status. At the same time such firms might have altruistic concerns towards consumers. In this paper we study semi-altruistic firms’ incentives to invest in quality and cost-reducing effort when facing constraints on the distribution of profits. Using a spatial competition framework, we derive the equilibrium outcomes under both quality competition with regulated prices and qualityprice competition. Profit constraints always lead to lower cost-efficiency, whereas the effects on quality and price are ambiguous. If altruism is high (low), profit-constrained firms offer higher (lower) quality and lower (higher) prices than firms that are not profit-constrained. Compared with the first-best outcome, the cost-efficiency of profit-constrained firms is too low, while quality might be over- or underprovided. Profit constraints may improve welfare and be a complement or substitute to a higher regulated price, depending on the degree of altruism. |
| Keywords: | Profit constraints; Quality competition; Semi-altruistic providers. |
| JEL: | D21 D43 L13 L30 |
| Date: | 2011–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2011_002&r=reg |
| By: | Dharmishta Raval (Indira Gandhi Institute of Development Research) |
| Abstract: | The first statutory regulatory body that the government of India set up post the reforms of 1991 was the Securities and Exchanges Board of India (SEBI). As a regulator for the securities markets, SEBI was given the powers to create subordinate legislation and to investigate wrong-doing and impose relevant penalties. In this paper, we examine and describe the legal processes at SEBI with a focus on the enforcement process, particularly on the quasi-judicial functions. We make an attempt to lay out the principles that ought to drive such functions in a regulatory body, against which we compare the current workings at SEBI. We propose a series of improvements through which the rule of law could be further strengthened. |
| Keywords: | enforcement process, securities market regulation |
| JEL: | G28 K22 K23 K41 K42 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2011-008&r=reg |
| By: | Jorge A. Chan-Lau |
| Abstract: | The correlation bias refers to the fact that claim subordination in the capital structure of the firm influences claim holders’ preferred degree of asset correlation in portfolios held by the firm. Using the copula capital structure model, it is shown that the correlation bias shifts shareholder preferences towards highly correlated assets, making financial institutions more prone to fail and increasing systemic risk given interconnectedness in the financial system. The implications for systemic risk and prudential regulation are assessed under the prism of Basel III, and potential solutions involving changes to the prudential framework and corporate governance are suggested. |
| Keywords: | Asset management , Bank supervision , Banks , Corporate governance , Economic models , Financial institutions , Financial risk , Risk management , |
| Date: | 2011–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/82&r=reg |
| By: | Degryse, H.A.; Jong, F.C.J.M. de; Kervel, V.L. van (Tilburg University, Center for Economic Research) |
| Abstract: | Two important characteristics of current European equity markets are rooted in changes in financial regulation (the Markets in Financial Instruments Directive). The regulation (i) allows new trading venues to emerge, generating a fragmented market place and (ii) allows for a substantial fraction of trading to take place in the dark, outside publicly displayed order books. This paper evaluates the impact on liquidity of fragmentation in visible order books and dark trading for a sample of 52 Dutch stocks. We consider global liquidity by consolidating the entire limit order books of all visible European trading venues, and local liquidity by considering the traditional market only. We find that fragmentation in visible order books improves global liquidity, but dark trading has a detrimental e¤ect. In addition, local liquidity is lowered by fragmentation in visible order books. |
| Keywords: | Market microstructure;Market fragmentation;Liquidity;MiFID. |
| JEL: | G10 G14 G15 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011051&r=reg |
| By: | Gérard Mondello (University of Nice Sophia Antipolis, CREDECO, GREDEG, UMR 6727, CNRS) |
| Abstract: | This paper addresses the conditions for setting up strict civil liability schemes. For that it compares the social efficiency of two main civil liability regimes usually enforced to protect the environment: the strict liability regime and the “capped strict liability scheme”. First, it shows that the regulator faces an effective dilemma when he has to enforce one of these schemes. This because the social cost of a severe harm (and the associated optimum care effort) is determined independently of any liability regime. This independency has economic consequences. First, victims and polluters pit one against another about the liability regime that the government should enforce. Hence, financially constrained polluters prefer the ceiling of responsibilities while victims wish to extend the amount of redress under a “standard” strict liability. Economic criteria for enforcing a regime rather than another one are lacking. Second, the paper shows that implementing civil strict liability rules may be done by setting up care standards as for instance in the nuclear or the maritime sectors and demanding to the injurers to comply with them. We show that this goal can be achieved by resorting to some friendly monitoring corresponding to frequent random controls with low fines rather than few controls that should involve heavy fines. |
| Keywords: | Environment, Strict Liability, Ex-Ante Regulation, Ex-Post Liability, Judgment-Proof, Environment Law, CERCLA, Environmental Liability |
| JEL: | K0 K32 Q01 Q58 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2011.21&r=reg |
| By: | Tomer Shachmurove (Pennsylvania State University); Yochanan Shachmurove (Department of Economics, University of Pennsylvania) |
| Abstract: | Spain has experienced many financial crises through its history. These financial crises have varied origins. However, they do have common threads. The current recession and subsequent debt crisis follow the same pattern. The fiscal and monetary policies of the Spanish government have played a role in creating and prolonging the boom and bust cycles. Government spending, government regulation, credit institutions, budget deficits, the political climate, and international trade are discussed to illuminate the causes and effects of these business cycles. The Spanish government can take action to improve the economy and to lessen the effects of its financial crises. |
| Keywords: | Spain; Spanish Economy; Financial Crises, Federal Budget Deficit, Banking Crises, Subprime Mortgage; Spanish Industrial Revolution; Economic History; Political Economy; International Trade; Government Regulation |
| JEL: | E0 E3 E44 E5 E6 F0 G0 G18 G38 N0 N1 N2 |
| Date: | 2011–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:11-011&r=reg |
| By: | Gérard Mondello (University of Nice Sophia Antipolis, CREDECO, GREDEG, UMR 6727, CNRS) |
| Abstract: | Ultra-hazardous risky activities as nuclear industry cannot be considered as “normal industries” i.e. industries without abnormal environmental and health risks. Consequently, the industrial organization of these specific sectors is of the utmost importance. This paper aims at studying this question. We focus on the associated costs of prevention and civil liability. We analyze how civil liability rules may contribute to extend or to discourage the expansion of nuclear parks to new operators. The paper compares the consequences of extending the management of nuclear stations to several independent operators. This question can apply to the unification process of the European electricity market in which several public and private nuclear power operators are running. The paper shows that the choice between either a monopolistic scheme (one operator managing several plants) or a decentralized one (one operator by station) depends on the condition of application of the legal civil liability regime and on the strength of the safety control exerted by the Nuclear Regulatory Authorities. It is shown that when the control is high, then the safety costs generated by the monopolistic organization are less than the same costs of a decentralized one. However, conditions on the insurance policy can mitigate this result. |
| Keywords: | Strict Liability, Electric Energy, Nuclear Plants |
| JEL: | Q5 Q58 Q53 K23 L13 L52 L94 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2011.34&r=reg |
| By: | Dirk Rübbelke (Basque Centre for Climate Change (BC3) and IKERBASQUE, Basque Foundation for Science); Pia Weiss (Nottingham University Business School) |
| Abstract: | We study the impact of environmental regulations on the patent activities for wind turbines between 1980 and 2008. We explicitly control for energy market liberalisation and take a potential interaction between liberalisation and policy instruments into account. We find a strong and highly significant effect of environmental tax revenues, which we regard as a proxy for the extent to which energy prices changed in favour of renewable energies, as well as foreign demand for wind turbines on innovation activities. In addition, we find that price-based policy instruments are more effective in fostering innovations in the wind turbine technology when energy markets are fully open to competition. In contrast, non-price-based policy instruments such as grants or low interest rate loans are largely independent from whether or not energy markets are liberalised. |
| Keywords: | Environmental Policy, Renewable Energy, Market Structure, Wind Turbines, Innovation, Patents, Technological Change |
| JEL: | Q55 Q58 O34 O38 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2011.32&r=reg |
| By: | Nicolas Véron |
| Abstract: | In this paper, Nicolas Véron argues that the EU regulatory response to the crisis has been generally slower in the EU than in the United States, for four main reasons: swifter financial crisis management and resolution in the US; structural differences in legislative processes; the EU�s front-loading of institutional reform, most notably the creation of European Supervisory Authorities; and the timetable of renewal of the European Commission in 2009-10. The EU has nevertheless initiated or completed significant regulatory initiatives in terms of banking, market structures, private equity and hedge funds, rating agencies and accounting. However, major further challenges loom. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:460&r=reg |
| By: | Jürgen-Peter Kretschmer (University of Marburg) |
| Abstract: | In competition law, the problem of the optimal design of institutional and procedural rules concerns assessment processes of the pro- and anticompetitiveness of business behaviors. This is well recognized in the discussion about the relative merits of different assessment principles such as the rule of reason and per se rules. Supported by modern industrial organization research, which applies a more differentiated analysis to the welfare effects of different business behaviors, a full-scale case-by-case assessment seems to be the prevailing idea. Even though the discussion mainly focuses on extreme solutions, different theoretical approaches do exist, which provide important determinants and allow for a sound analysis of appropriate legal directives and investigation procedures from a ‘Law and Economics’ perspective. Integrating and examining them in light of various constellations results in differentiated solutions of optimally structured assessment processes. |
| Keywords: | Law Enforcement, Competition Law, Competition Policy, Antitrust Law, Antitrust Policy, Decision-Making |
| JEL: | K21 K40 L40 L49 D81 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201114&r=reg |