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on Regulation |
| By: | Jörg Borrmann; Gert Brunekreeft |
| Abstract: | This paper contributes a theoretical analysis of the effects of different types of regulation on the timing of monopoly investment in a setting with lumpy investment outlays. Concentrating on the case where investment increases the regulatory asset base, we distinguish between price-based regulation and cost-based regulation. Under cost-based regulation, investment triggers a change of regulated prices, whereas, under price-based regulation, investment does not affect them. To motivate investment, we focus on wear and tear leading to replacement investment and on demand growth resulting in expansion investment. Our main conclusion is that cost-based regulation accelerates investment compared to price-based regulation. |
| Keywords: | Cost-based regulation, Expansion investment, Investment timing, Monopoly, Price-based regulation, Replacement investment |
| JEL: | D42 G00 L51 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:bei:00bewp:0009&r=reg |
| By: | Gert Brunekreeft; Roland Meyer |
| Abstract: | Most transmission systems in Europe are currently in need of large network expansions, in particular to cope with increasing shares of load remote renewable energy sources. Given that the scope for further cost reductions is largely exhausted, we observe a paradigm shift into the direction of implementing more cost-pass-through elements into price-based regulation to strengthen the necessary investment incentives. Regulatory emphasis is shifting from cost-reductions to promoting investment. Obstacles to investments arise in particular from regulatory risk and efficiency risk. Addressing these topics, we recommend a move towards more cost-based approaches, with ex-ante investment approval and less reliance on ex-post benchmarking. |
| Keywords: | regulation, regulatory risk, network investments |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:bei:00bewp:0005&r=reg |
| By: | Woll, Cornelia (Centre d'études et de recherches internationales) |
| Abstract: | The highly politicized debate about the recent Alternative Investment Fund Manager (AIFM) Directive of the European Union led many observers to suspect an ideological battle between countries seeking to impose transnational regulation on financial service industries such as hedge funds and liberal market economies insisting on the benefits of market discipline in order to protect their financial centers. The battle that appeared to particularly pit France against the United Kingdom can thus be interpreted as an example of a regulatory paradigm shift in the aftermath of the crisis. This article cautions against such an ideas-centered account of financial regulation and points to the economic interests that drove the French and German agendas. However, contrary to the assumptions of traditional political economy approaches, national preferences were not simply defined by the aggregate of a country’s economic interests. Rather, industry success in shaping government positions on alternative investment regulation crucially depended on how a given industry fit into the government’s overarching geo-political agenda. By highlighting this feedback loop between government strategy and industry lobbying, the paper proposes a strategic analysis of financial regulation, as opposed to accounts that consider positions to be pre-determined by ideas or socio-economic structures. |
| Keywords: | economic policy;; financial markets;; liberalization;; regulation; |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ner:sciepo:info:hdl:2441/eu4vqp9ompqllr09hae2n8o0n&r=reg |
| By: | Cédric Clastres (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : FRE3389 - Université Pierre Mendès-France - Grenoble II) |
| Abstract: | The deployment of smart grids in electricity systems has given rise to much interdisciplinary research. The new technology is seen as an additional instrument available to States to achieve targets for promoting competition, increasing the safety of electricity systems and combating climate change. But the boom in smart grids also raises many economic questions. Public policies will need to be adapted, firstly to make allowance for the potential gains from smart grids and the associated information flow, and secondly to regulate the new networks and act as an incentive for investors. The new competitive offerings and end-user pricing systems will contribute to improving allocative and productive efficiency, while minimizing the risks of market power. With real-time data on output and consumption, generators and consumers will be able to adapt to market conditions. Lastly smart grids will boost the development of renewable energy sources and new technologies, by assisting their integration and optimal use. |
| Keywords: | Smart grid ; Regulation ; Investments |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00617702&r=reg |
| By: | Adam Swadley; Mine Yücel |
| Abstract: | A key selling point for the restructuring of electricity markets was the promise of lower prices, that competition among independent power suppliers would lower electricity prices to retail customers. There is not much consensus in earlier studies on the effects of electricity deregulation, particularly for residential customers. Part of the reason for not finding a consistent link with deregulation and lower prices was that the removal of the transitional price caps led to higher prices. In addition, the timing of the removal of price caps coincided with rising fuel prices, which were passed on to consumers in a competitive market. Using a dynamic panel model, we analyze the effect of participation rates, fuel costs, market size, a rate cap and a switch to competition for 16 states and the District of Columbia. We find that an increase in participation rates, price controls, a larger market, and high shares of hydro in electricity generation lower retail prices, while increases in natural gas and coal prices increase rates. The effects of a competitive retail electricity market are mixed across states, but generally appear to lower prices in states with high participation and raise prices in states that have little customer participation. |
| Keywords: | Price regulation |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1105&r=reg |
| By: | Nicolo, G. De; Gamba, A.; Lucchetta, M. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper formulates a dynamic model of a bank exposed to both credit and liquidity risk, which can resolve financial distress in three costly forms: fire sales, bond issuance and equity issuance. We use the model to analyze the impact of capital regulation, liquidity requirements and taxation on banks' optimal policies and metrics of efficiency of intermediation and social value. We obtain three main results. First, mild capital requirements increase bank lending, bank efficiency and social value relative to an unregulated bank, but these benefits turn into costs if capital requirements are too stringent. Second, liquidity requirements reduce bank lending, efficiency and social value significantly, they nullify the benifits of mild capital requirements, and their private and social costs increase monotonically with their stringency. Third, increases in corporate income and bank liabilities taxes reduce bank lending, bank effciency and social value, with tax receipts increasing with the former but decreasing with the latter. Moreover, the effects of an increase in both forms of taxation are dampened if they are jointly implemented with increases in capital and liquidity requirements. |
| Keywords: | Capital requirements;liquidity requirements;taxation of liabilities. JEL Classifications |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011090&r=reg |
| By: | Mehdi Abbas (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : FRE3389 - Université Pierre Mendès-France - Grenoble II) |
| Abstract: | The relation between the climate regulation and the multilateral trade regime is a rising issue in the field of international governance. This article presents the options available to OPEC economies related to this. It analyses the option of introducing a carbon tax or border adjustment measures in the core of the WTO regime. It demonstrates that this option is not sustainable for both institutional and political economy reasons. This is why the article argues that the way to build a climate-compatible trade regulation which takes into account oil exporting countries' interests is to elaborate a cross-institutional cooperation between the WTO and the UNFCCC |
| Keywords: | World Trade Organization ; multilateral trade regime ; climate governance |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00617923&r=reg |
| By: | Christopher R. Knittel; Ryan Sandler |
| Abstract: | Efforts to reduce greenhouse gas emissions in the US have relied on Corporate Average Fuel Economy (CAFE) Standards and Renewable Fuel Standards (RFS). Economists often argue that these policies are inefficient relative to carbon pricing because they ignore existing vehicles and do not adequately reduce the incentive to drive. This paper presents evidence that the net social costs of carbon pricing are significantly less than previous thought. The bias arises from the fact that the demand elasticity for miles travelled varies systematically with vehicle emissions; dirtier vehicles are more responsive to changes in gasoline prices. This is true for all four emissions for which we have data—nitrogen oxides, carbon monoxide, hydrocarbon, and greenhouse gases—as well as weight. This reduces the net social costs associated with carbon pricing through increasing the co-benefits. Accounting for this heterogeneity implies that the welfare losses from $1.00 gas tax, or a $110 per ton of CO2 tax, are negative over the period of 1998 to 2008 even when we ignore the climate change benefits from the tax. Co-benefits increase by over 60 percent relative to ignoring the heterogeneity that we document. In addition, accounting for this heterogeneity raises the optimal gas tax associated with local pollution, as calculated by Parry and Small (2005), by as much as 57 percent. While our empirical setting is California, we present evidence that the effects may be larger for the rest of the US. |
| JEL: | D62 H2 H3 I18 L0 L9 Q5 R2 R4 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17390&r=reg |
| By: | Gaston Giordana; Ingmar Schumacher |
| Abstract: | In this paper we study the impact of the Basel III liquidity regulations, namely the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), on the bank lending channel in Luxembourg. For this aim we built, based on individual bank data, time series of the LCR and NSFR for a sample of banks covering between 82% and 100% of total assets of the banking sector. Additionally, we simulated the optimal balance sheet adjustments needed to adhere to the regulations. We extend the existing literature on the identification of the bank lending channel by adding as banks characteristics the estimated shortfalls in both the LCR and NSFR. We find a significant role for the bank lending channel in Luxembourg which mainly works through small banks with a large shortfall in the NSFR. We also show that big banks are able to increase their lending following a contractionary monetary policy shock, in line with the fact that big banks in Luxembourg are liquidity providers. Our extrapolation and simulation results suggest that the bank lending channel will no longer be effective in Luxembourg once banks adhere to the Basel III liquidity regulations. We find that adhering to the NSFR may reduce the bank lending channel more strongly than complying with the LCR. |
| Keywords: | bank, bank lending channel, monetary policy, Basel III, LCR, NSFR |
| JEL: | E51 E52 E58 G21 G28 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp061&r=reg |
| By: | Andrew Sheng |
| Abstract: | This paper reviews the key insights of Hyman P. Minsky in arguing why finance cannot be left to free markets, drawing on the East Asian development experience. The paper suggests that Minsky's more complete stock-flow consistent analytical framework, by putting finance at the center of analysis of economic and financial system stability, is much more pragmatic and realistic compared to the prevailing neoclassical analysis. Drawing upon the East Asian experience, the paper finds that Minsky's analysis has a system-wide slant and correctly identifies Big Government and investment as driving employment and profits, respectively. Specifically, his two-price system can aid policymakers in correcting the systemic vulnerability posed by asset bubbles. By concentrating on cash-flow analysis and funding behaviors, Minsky's analysis provides the link between cash flows and changes in balance sheets, and therefore can help identify unsustainable Ponzi processes. Overall, his multidimensional analytical framework is found to be more relevant than ever in understanding the Asian crisis, the 2008 global financial crisis, and policymaking in the postcrisis world. |
| Keywords: | Financial Economics; Keynes; Keynesian; Post-Keynesian; Government Policy and Regulation |
| JEL: | E12 G28 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_684&r=reg |
| By: | Rolf Golombek, Sverre A.C. Kittelsen and Knut Einar Rosendahl (Statistics Norway) |
| Abstract: | We analyze how different ways of allocating emission quotas may influence the electricity market. Using a large-scale numerical model of the Western European energy market, we show that different allocation mechanisms can have very different effects on the electricity market, even if the total emission target is fixed. This is particularly the case if output-based allocation (OBA) of quotas is used, with gas power production substantially higher, partly at the expense of renewable and coal power, than if grandfathering and auctioning based mechanisms are used. The price of emissions is almost twice as high. Moreover, even though electricity prices are lower, the welfare costs of attaining a fixed emission target are significantly higher. The paper analyzes other allocation mechanisms as well, leading to yet more outcomes in the electricity market. The numerical results for OBA are supported by theoretical analysis, with some new general results. |
| Keywords: | Quota market; Electricity market; Allocation of quotas |
| JEL: | D61 H23 Q41 Q58 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:661&r=reg |
| By: | Hüschelrath, Kai; Müller, Kathrin |
| Abstract: | The article studies the evolution of the U.S airline industry from 1995 to 2009 using T-100 traffic data and DB1B fare data from the U.S. Department of Transportation. Based on a differentiation in market size and major players, entry and exit, concentration, fares, service, costs and profits, the article provides a fresh look on recent developments in the structure, conduct and performance of the domestic U.S. airline industry in light of both the substantial growth of low cost carriers and severe internal and external shocks such as merger and bankruptcy activity or the recent recession. Unlike previous studies, a consistent split of the analysis in network carriers and low cost carriers is introduced. In general, we find that the competitive interaction between network carriers and low cost carriers increased substantially throughout the last decade and must be considered as the main driver of competition in the domestic U.S. airline industry. -- |
| Keywords: | Airline industry,deregulation,network carrier,low cost carrier |
| JEL: | L40 L93 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11051&r=reg |