Ex-post Regulation Research Articles

Comparative Impacts of Ex-Ante and Ex-Post Regulation in Digital Markets: An Event Study Analysis of Stock Price Reactions

Abstract In the analysis of digital markets and competition, it is imperative to consider the regulatory landscape. Specifically, with the shift from ex post to ex ante regulation in competition law, establishing a competitive environment reflective of regulatory costs becomes imperative. This study investigates the market’s assessment of ex ante regulation through stock price event analysis. The findings reveal that the market perceives a 10–20 % negative impact on businesses from ex ante regulation for each event upon finalization of the regulatory framework or identification of regulated entities. Unlike ex-post regulation, which targets specific businesses and yields varied impacts in competition law violations, ex ante regulation’s broader influence is remarkable. ex ante regulation incurs significant business costs, with the market assessing its impact as surpassing that of ex-post regulation when viewed holistically. Acknowledging these regulatory costs underscores the imperative for stringent oversight to guarantee the attainment of regulatory aims and objectives.

Ex-ante and ex-post regulation: Does the joint use improve on social welfare?

A principle-agent model is applied to discuss the relationship between ex-ante regulation (standards) and ex-post regulation (firm and worker fines). Accident risks (e.g. medical errors) are affected by decisions made both by the firm (hospital) itself and the employees of the firm (healthcare workers), the regulator observes the safety efforts of the firm and (a share of) the occurrences of accidents, while worker safety efforts are non-contractible. We find that standards and firm fines are substitutes since their joint use does not improve social welfare relatively to their exclusive use. However, standards and worker fines become complements (the joint use improves social welfare relative to their exclusive use) in the presence of firm-related accident costs.

Administrative Regulation of Social Media Algorithms in the European Union and America and Their Implications for China

While social media algorithms have brought positive effects, they have also brought a series of crises that have sparked public concern about algorithmic technology. In response, many countries have adopted a series of regulations on platform algorithms. The EU mainly adopts a collaborative regulatory model between administrative agencies and private institutions, emphasizing both ex-ante and ex-post regulation of algorithms, and further reinforcing the obligations and responsibilities of social media platforms, as well as adopting focused regulation on large social media platforms. The U.S. mainly focuses on external accountability, industry self-regulation, and the protection of freedom of expression and democratic politics. By analyzing the dynamics and practices of administrative regulation of social media algorithms in the EU and the U.S., it is suggested that China should: build a multiple regulation model, realize the substantial participation of other subjects, explore the hierarchical and categorical regulation of social media platforms, strengthen the construction of anti-monopoly for large social media platforms, and enhance the whole process regulation of social media algorithms, with a belief of building a perfect social media algorithm regulation system.

De Jure Standard Setting in the Telecom Industry – Its Evolution and the Developing Country Case for Reform

The issue of technological standards has become increasingly important in the context of telecommunications technology. With every new generation of mobile technology, the issue of determining standards has become progressively more complicated. Most literature on this issue has focused on the standard setting process or the litigation that has resulted around the enforcement of patents over technical standards. There is, however, relatively little scholarship that studies the issue of standards through the prism of developing countries and the unique challenges they face in regulating technological standards which they are bound to protect under international IP agreements, despite the fact that they have little influence over the process by which these standards are set. The structure adopted by this chapter is as follows: Part I will provide a brief history of the standard development organisations in the context of the telecommunications industry, focussing on the demise of both, the ITU and the monopolies in the telecommunication industry. Part II will explain how the global intellectual property landscape has changed post the Agreement on Trade Related Intellectual Property Rights (TRIPS) and its impact on the standard debates from the perspective of developing countries. Part III will focus on the manner in which the de jure standard development process works and the commonly raised issues in this regard. Part IV will examine the challenges faced by developing countries like India in ex-post regulation of these standards. Part V will reflect on the lessons learnt and propose the manner in which developing countries may try regulating their standards.

A conceptual framework for accountability of the airport industry in the transition from ex-ante regulation to ex-post regulation

Regulation of companies with market power in the provision of the essential services has been intended to provide incentives aimed at improving efficiency and service quality. Few studies have investigated the accountability of regulated industries and answered the question of the most appropriate accounting model for protecting consumers, promoting competition and ensuring investors' profitability. With the transition from an ex-ante to an ex-post model – based on free negotiation between stakeholders on price setting and monitoring activity by an independent authority – in many settings, the effectiveness of the accounting model seems to be strictly related to the quantity and quality of the information that regulated companies provide on a mandatory basis in anticipation of consultations with service users, and the quantity and quality of information that they voluntarily offer to stakeholders via their financial reporting. This paper aims to explore accountability relationships that emerge in regulated airport industries moving from ex-ante to ex-post models in order to propose a conceptual framework capable of remedying the shortcomings of the extant ones and, in particular, the conceptual framework established by Vass (1992). The new framework is also used to identify which accounting model is required to improve the effectiveness of regulation.

Problems Associated with Implementation of Light Pollution Prevention Act in Korea and Proposed Solutions

In order to identify administrative and institutional problems in implementing present Light Pollution Prevention Act in Korea, and to propose improvement measures, we examined current civil complaint status, reviewed press releases, and analyzed the contents of numerous expert meetings and various international standards. Following improvement measures are hereby proposed.BR The current ex-post regulation enforcement system should be changed, in part, to a preliminary review system. Such preliminary review system will not only help prevent light pollution prior to actual installation of lighting, but also will have positive effects in regulating their presentation, aesthetics, energy waste, and installation/maintenance costs.BR Guidelines on designation and operation of lighting environmental management zones should be available to ensure consistency in zone designation process.BR True light pollution prevention effect may be realized only if the scope of subject lightings applicable to law is progressively expanded, to include lightings that had been the main causes of recent increase in civil complaints - such as those at gas stations, sports facilities, and religious facilities.BR Light pollution management standards on crops and livestock should be additionally available, while institutions responsible for measurements should be designated officially to ensure accurate and objective assessment of light pollution levels.

BOSNA-HERSEK`TEKİ TELEİLETİŞİM SEKTÖRÜNÜN DÜZENLEME ZORLUKLARI

Much anticipated privatization of the two remaining incumbent telecom operators in Bosnia will create a new dynamic and changing environment for all participants in this sector, especially for potential investors that are trying to find the right approach and a competitive market niche. The intention of this paper is to provide an overview of regulatory developments in the telecommunication sector over the past two decades, major challenges, accomplishments, and the role played by State Communication Regulatory Agency (CRA). The research includes the analyses of adopted Sector Policies, the Telecommunication Law itself, as well as the rules and major decisions issued by CRA. Through a countrywide survey and multinomial logit estimation of consumer's selection between the two largest mobile carriers, as well as in-depth interviews with the sector participants and CRA – we provided consumers' and participants' opinions of the sector development, achievements, challenging issues, and major stepping stones. Asserting its role as an independent regulatory authority and despite unprecedented political difficulties, the CRA has managed to complete the overall process of sector liberalization. It has done so mostly by utilizing an ex-ante form of regulation and proactively addressing critical areas for the sector development. But, market conditions are constantly changing and the demand for ex-post regulation will bring new challenges for regulatory authorities. The privatization of remaining incumbent carriers, making the maximum use of local-loop unbundling and open network provision, is only one of them. Also, securing the balanced infrastructure development and ensuring that the overall social welfare gains are equally distributed throughout the country will present new and evermore challenging questions for country telecommunication regulatory authorities.

국내 금융시장ㆍ산업에 대한 사후 규제 강화

국내 금융시장ㆍ산업에 대한 사후 규제 강화

Anticipating the location of a waste collection point: an application based on Portugal

We study the optimal location of a waste facility in a horizontally differentiated duopoly where firms choose their location and price. The policymaker decides the location of a waste facility targeting social welfare maximization. Consistent with the observation of the location decisions of waste facilities in Portugal, we show that the optimal location of a waste facility is never in the city center under partial ex-post regulation. Ex-ante regulation ensures the highest level of social welfare, but from a theoretical point of view, it requires a waste facility located in the city center. A robustness check is then provided to justify that, in actual regulatory practice, a first-mover regulator maximizes social welfare without necessarily imposing the installation of a waste facility in the city center.

The Management of Foreign Private Equity Funds Involves Foreign Investment and Foreign Exchange in the China (Shanghai) Pilot Free Trade Zone

China (Shanghai) Pilot Free Trade Zone’s management model of post-establishment national treatment to foreign investors is providing replicable and propagable experiences for the comprehensive deepening reform of China. Foreign private equity funds involve foreign investment and foreign exchange management and other systems which could be a representative sample of reform. However, even after the removal of previous unnecessary regulations, the reform of the post-establishment national treatment access is not absolute equality and fully liberalized for developing a concurrent regulation and ex-post regulation framework. Specifically, there is a need to simplify procedures in the stage of establishment and use the same barriers to entry with domestic capital, adopt the “negative list” management model in the part of investment; gradually promote the liberalization of foreign exchange, and monitor whether the flow of funds is real compliance, and also, make a national security review of fund acquisitions.

Exclusion and regulatory intervention in investment sharing agreements

An incumbent and an other licensed operator may jointly invest to develop fiber network infrastructure while an outsider operator invests to develop cable network infrastructure. Regardless whether the investment sharing agreement occurs, market exclusion of the facility-based outsider does not hold. Considering the prevalence of the investment sharing agreement, it is not necessarily true that each insider contributes with an investment share of 50% since there may exist a trade-off between bargaining power and investment participation. Although full integration avoids duplication of investment costs, social welfare may be higher under partial integration. Presuming the increasing run for fiber, the framework proposes the inclusion of a fourth service-based operator that requires access to the fiber network infrastructure held by the consortium. This may define a tight oligopoly with simultaneous presence of investment sharing agreement. The service-based outsider is excluded from the retail market when the wholesale access price is unregulated. Subsequently, market exclusion depends on the competitive nature of the outsider firm. Finally, the framework reveals the conditions that legitimize ex-post regulation of the wholesale access price of fiber. An asymmetric regulatory intervention at the wholesale access price level is justified as a means of improving social welfare if the investment effort is excessively high. The same applies if the investment effort is intermediate, provided that an excessively high gap exists between the vertical spillover that affects the fiber consortium in relation to the vertical spillover that affects the cable operator.

Extent and determinants of voluntary disclosure for regulatory purposes in the Italian airport industry

In addition to enhancing financial markets and corporate governance effectiveness, voluntary disclosure can serve the purpose of regulation through the balancing of powers among the actors of the market. Lack of transparency has been viewed as one of the main barriers to the effectiveness of traditional ex-ante regulation frames in regulated markets and, in particular, as a potential threat in relation to the general rethinking of airport regulation approach based on the pillars of free negotiation, periodical consultation between stakeholders and monitoring activity by an independent authority. The central theme is whether airports, as significant examples of regulated monopolies and in contexts where regulation is changing, such as Europe with Directive 2009/12/CE, are liable to voluntarily offer stakeholders information they had to give, as mandatory requirements, to regulatory authority. Transparency, in fact, becomes a powerful tool to increase the effectiveness of regulation and disclosure level should be adequately considered by governments to assess the maturity of regulated industries and so identify the best way to implement non-formal regulation systems. This study examines the extent and the determinants of voluntary disclosure by Italian airports. The key findings are that disclosure behaviour related to regulatory purposes is moderate and quite similar as regards financial and general information and that financial disclosure is influenced by the form of concession and the origin of traffic, while the general disclosure is impacted by the number of passengers and the form of concession. The findings provide airport managers with the awareness about the unsystematic nature of disclosure practices and contribute to sensitize them on the necessity to abandon compliance-driven approach, as a higher level of voluntary disclosure could be an important way to reinforce airport competitiveness. Major practical implications are also related to the evolution of the approach to regulation in the international context. In this regard, the central takeaways from the results imply that specific policies should be developed to enhance and constantly monitor the level of disclosure in regulated industries, and that the implementation of an indistinct ex-post regulation model for all company categories is highly risky for improving market efficiency, as structural and operational features of companies should be considered in advance.

Regulation of district-heating systems

District heating plays a major role in many countries' heating markets. Unlike natural gas and electric power utilities, district-heating systems are commonly not subject to direct economic regulation, particularly with regard to prices. This article examines the possibility of regulating district-heating systems and the difficulties associated with practical implementation using the example of the German district-heating market. It considers, from an economic perspective, regulation of access to district-heating systems as well as regulation of pricing by district-heating systems. Ex-ante and ex-post regulation of retail prices are considered. Finally, some ideas for the further development of district-heating regulation are suggested.

What is the Best Way to Supervise the Quality of Medical Devices? Searching for a Balance Between ex-ante and ex-post Regulation

This article discusses the legal remedies available for Competent Authorities, patients and healthcare professionals to prevent harmful incidents involving medical devices. It outlines a theoretical framework for ex-ante and ex-post regulation of medical devices. It then focuses on certain aspects of ex-post regulation. Participation by Competent Authorities with a supervisory role, healthcare professionals and patients in ex-post regulatory legal processes is analysed in the light of the current European Union legal framework and the revised framework proposed by the European Commission. It also discusses whether the proposed new legal framework enables the Competent Authorities, patients and healthcare professionals to prevent the harm caused by unsafe medical devices. Ex-ante regulation might prevent the entrance on the market of unsafe devices whereas ex-post regulation might dismiss the unsafe devices. The contribution concludes by suggesting a number of improvements to the supervisory system of medical devices in Europe.

Unbundling, public infrastructure financing and access charge regulation in the German rail sector

Abstract This paper provides an analysis of the outcomes of the German model with a focus on unbundling, public infrastructure financing and access charge regulation. It reviews recent regulatory initiatives in Germany such as the regulator’s proposal to introduce a price-cap regulation and the draft of a new regulation law for the German rail sector. The analysis shows that the German Holding model appears to be successful in terms of transport performance and financial outcomes. However, it is characterised by regulatory deficits which have hampered a faster progress in introducing competition in the rail sector. The new regulation law contains a series of measures which will provide more transparency in access and access charges, strengthen the position of the regulator and move the current ex-post regulation towards an ex-ante regulation based on the efficient costs of service provision. However, exclusion of costs for replacements and new investments from access charge regulation leaves only the smaller part of costs for a consistent regulation and will weaken the impacts of regulation.

An Evaluation of Different Approaches to Capital Structure Regulation

With the introduction of incentive regulation in many network industries, different approaches how to remunerate invested capital have been used. Under incentive regulation, many regulators remunerate the regulated asset base with a weighted average cost of capital (WACC) based on a pre-defined gearing, not considering individual capital structure at all. From a regulator’s point of view, the aim is clear: Provide incentives to the firms to optimize their capital structure, i.e. finding the right balance between equity financing and debt. Taggert (1981) shows that rate-of-return regulation creates an incentive for regulated firms to alter their capital structures in order to influence consumer prices. Spiegel and Spulber (1994) find that the firm chooses its equity and debt in order to affect the outcome of the regulatory process. As a hybrid model between WACC and individual capital structure, the German Regulator sets incentives for a certain capital structure by limiting the return on equity that can be incorporated into network tariffs with a cap. However it has not been analyzed neither in theoretical nor in practical research which incentives are really created by this cap. To analyze the impact of different capital structure regulation mechanisms on the optimal capital structure, a static trade-off-theory model of capital structure is presented and the characteristics of several different approaches to capital structure regulation and their characteristics are analyzed. The results indicate that the overall effect of capital structure regulation is very important: In an ex-ante regulation setting, the consideration of individual capital structures leads to higher equity ratios than the use of a benchmark-WACC. In this context, caps are an effective mean to set incentives for a predefined equity ratio. In an ex-post regulation where bankruptcy is merely a threat, it may be optimal to rely on extreme strategies solely financing with equity or debt.

Generalized Progress of Abatement Technology: Incentives Under Environmental Liability Law

This paper considers the incentives environmental liability creates to improve pollution abatement technology. Our analysis considers technical progress in end-of-pipe abatement and in the production technology used, thereby generalizing the approach taken by Endres et al. (Environ Resour Econ 36:341–366, 2007). We establish that this generalization has drastic repercussions on incentives under negligence liability, while the performance of strict liability is not compromised. Furthermore, it is demonstrated that the social desirability of investment in abatement or production technology (or both) decisively determines how ex-ante and ex-post regulation fare with respect to welfare maximization in the case of negligence liability.

SAFE: An Early Warning System for Systemic Banking Risk

From the financial supervisor’s point of view, an early warning system involves an ex-ante approach to regulation, targeting to predict and prevent crises. An efficient EWS allows timely ex-ante policy action and can reduce the need for ex-post regulation. This paper builds on existing microprudential and macroprudential early warning systems (EWSs) to propose a hybrid class of models for systemic risk incorporating the structural characteristics of the financial system and feedback amplification mechanism. The models explain financial stress using data from five largest bank holding companies, regressing institutional imbalances using an optimal lag method. Z‐scores of institutional data are justified as explanatory imbalances. The models utilize both public and proprietary supervisory data. The SAFE EWS monitors micro-prudential information from systemically important institutions to anticipate build-up of macro-economic stresses in the financial markets at large. To the supervisor, SAFE presents a toolkit of possible institutional supervisory actions that can be used to diffuse the build-up of systemic stress in the financial markets. A hazard inherent for all ex-ante models is that the model uncertainty may lead to wrong policy choices. To mitigate this risk, SAFE develops two modeling perspectives: a set of medium term (six-quarter) forecasting specifications to allow the policymakers sufficient time for ex-ante policy action, and a set of short term (two-quarter) forecasting specifications for verification and adjustment of supervisory actions. Individual financial institutions may utilize public version of SAFE EWS to enhance systemic risk stress testing and scenario analysis. The paper shows econometric results and robustness support for the SAFE set of models. Discussion of results addresses usability and tests of usefulness of supervisory data. In addition, the paper investigates and suggests levels for action thresholds appropriate for this EWS.

Ex-post efficient permit markets: a detailed analysis

This paper provides a detailed analysis of ex-post efficient permit markets. After a short review of institutional designs that can achieve ex-post efficiency under uncertainty and asymmetric information, we analyze the effects of an ex-post efficient regulation on the expected costs of the regulated firms, on their investment behavior, and on the incentives for strategic behavior on imperfectly competitive permit markets. Also we inquire about the budget effects of the regulation. Our results show that ex-post efficient permit markets have considerable benefits beside the direct increase in expected social welfare.

Airport regulation and competition

In the airports industry, there is a trade off between imperfect (or monopolistic) competition and economic regulation (with the latter introducing separate economic distortions). The nature of the imperfectly competitive market in the supply of airport services is examined and it is suggested that market power is the consequence of the problems of gaining access to competing sites rather than of natural monopoly. Nevertheless, there are opportunities for substitution between airports (and other modes of transport) depending upon the characteristics of the market and historical and geographical circumstance although substitutability is too narrow a criterion for judging market power because of the transmittal effects of price competition in a spatial market. It is then suggested that some unusual economic characteristics of the industry provide an incentive for airports not to exploit market power and, absent these incentives, the adverse economic costs of exercising market power might be small. The paper concludes by suggesting that ex-post regulation of conduct provided for under normal competition law is probably sufficient to curb monopolistic excesses.