http://repub.eur.nl/res/concept/jel-K23/ Recent publications classified by JEL Code K23 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/34855/ 2011-08-31T00:00:00Z Abstract This chapter provides a general framework to analyze regulation with a law and economics approach. It introduces the volume “Regulation and Economics” of the second edition of the Encyclopedia of Law and Economics. This study intends to provide a state-of-the-art overview of regulatory economics. The editors review the traditional classifications and theories of social and economic regulation, emphasizing the limitations of these distinctions particularly in the perspective of the choice between liability and regulation. The chapter discusses both the public and the private interest theories of regulation and how they interact in various regulatory domains. The latter are divided in four categories: social regulation; regulation of public utilities; regulation of non-natural-monopolies, and regulation of professions. This introduction also summarizes the main findings of the 17 chapters on regulation included in the volume. The overall conclusion is that regulation involves a number of sector-specific issues. It is no longer possible to distinguish forms of regulation depending on the kind of market failure they are supposed to address, because in virtually every field regulation has to cope simultaneously with multiple market failures. The implication of this finding is twofold. On the one hand, the ability of regulation to effectively improve on market failure is impaired by the vested interests created by regulation. On the other hand, the actual outcomes of regulated markets depart significantly from the idealized world of perfect competition. The ‘Nirvana fallacy’ that still pervades the academic and the policy debate depends on the failure to acknowledge these circumstances. Pacces, A.M. Bergh, R.J. van den http://repub.eur.nl/res/pub/34943/ 2011-05-01T00:00:00Z Abstract: This paper is one chapter of the volume “Regulation and Economics” of the second edition of the Encyclopedia of Law and Economics. The authors review the economics of banking and financial markets and the regulatory response to market failure. Market failure in finance depends on problems of information and externalities. Regulation addresses these problems through conduct of business rules and prudential requirements. This approach has recently proved insufficient to prevent financial crises. Governments and central banks had to step in with massive safety nets in order to prevent financial meltdown. Although the appropriate regulatory response to the global financial crisis is still to be discovered, this chapter tries to draw a few lessons for financial regulation and supervision. First, prudential regulation and supervision should monitor, and possibly limit, competition between banks and non-banks in order to identify timely new sources of systemic risk. Second, financial stability policies need to strike a difficult balance between ex-ante strictness and ex-post leniency in order to deal with non-quantifiable risks. Moral hazard is not the only determinants of systemic instability; knightian uncertainty also determines instability by suddenly curtailing market and funding liquidity. Third, all financial institutions falling within the regulatory perimeter should have good corporate governance. However, what is good governance for non-financial firms is not necessarily efficient for financial firms due to the quality and quantity of externalities involved. Finally, because systemic externalities are cross-jurisdictional in modern financial markets, at least coordination among monetary and supervisory authorities of different countries is warranted. Pacces, A.M. Heremans, D. http://repub.eur.nl/res/pub/34945/ 2010-01-01T00:00:00Z Abstract This article analyzes the last financial crisis focussing on the recurrent dynamics of externalities in banking. It shows that two major determinants of the crisis were the uncertainty of a new form of financial intermediation and the failure of regulation to cope with its externalities. Differently from more standard explanations, which are based on opportunism and/or irrationality of financial institutions, this analysis suggests that regulation has not just been insufficient. Regulation has contributed to financial instability too, supporting fragile conventions to handle uncertainty and encouraging regulatory arbitrage through financial innovation. Three implications are derived from this analysis and contrasted with the ongoing reforms of financial regulation in the US and in the EU. First, regulatory arbitrage is better dealt with by protecting banking from disintermediation than by extending prudential regulation to non-banks. Maturity transformation should be defined functionally and reserved to banks. Second, a major danger with ratings is that they support false conventions of safety. To avoid this outcome, the relevance of ratings for regulatory purposes should be reduced and rating agencies should be deterred from rating without firm knowledge. Third, in order to reduce short-termism, regulation of banks’ corporate governance should rather question than reinforce managerial accountability to shareholders. Pacces, A.M. http://repub.eur.nl/res/pub/13458/ 2007-12-30T00:00:00Z This article starts by discussing a number of public interest explanations for regulating the markets of legal services: information asymmetries, negative externalities and public goods. Since professional associations of lawyers meet the requirements for acting as effective lobbyists, the article subsequently investigates private interest explanations. Empirical work to test alternative theories of professional regulation so far remains limited and the results are ambiguous. Even if empirical studies are able to show that there exists a correlation between levels of professional regulation and profits earned, firm policy conclusions cannot be drawn as long as quality is not adequately assessed. After an overview of the theoretical and empirical literature, the article suggests a number of best practices for policy making. The two most important guidelines seem to be the following. Regulation should not be profession-focused but targeted at market failures in particular segments of the legal services markets. Changes of the regulatory infrastructure that create scope for competitive self-regulation may be the best way for coping with market failures and at the same time reducing the scope for rent-seeking. Bergh, R.J. van den http://repub.eur.nl/res/pub/7713/ 1999-10-08T00:00:00Z Institutional barriers to entry were removed to a considerable extent in 1996 in the Dutch retail sector. Three years before that the regulator decided to not take legal actions anymore against entrants violating institutional requirements. In the current analysis we investigate the effects of the deregulation during that 1993-1995 period using a recently developed model by Carree and Thurik (1999). The results show that the equilibrium number of firms has increased significantly. Results on the adjustment speed from the disequilibrium number of firms to the equilibrium number are more weak but tend to show a picture of increased speed. The deregulation of the Dutch retail industry seems therefore to have enlarged market dynamics (faster displacement and replacement) and to have reversed the concentration process to some extent. The results also show that the increase in the speed of adjustment is the consequence of lowering barriers to entry while the barriers to exit have not changed Carree, M.A. Nijkamp, J.