Regulatory Distortions Research Articles

Presidential Decree Number 62 of 2023: Distortion Regulation or Acceleration Solution for Agrarian Reform?

The implementation of Presidential Decree No. 62 of 2023 has substantively attempted to integrate several regulations at technically applicable level; however, on the other hand, it still raises several problems, particularly in relation to the provision of land for agrarian reform objects, land originating from forest areas. This study aimed to analyze the implementation of Presidentialial Decree No. 62 of 2023 as the latest regulation regarding the acceleration of agrarian reform activities in Indonesia as an effort to recognize that land is the greatest source of wealth for people as ordered by the constitution. To analyze the problem, the method used is type study law normative. One of the factors inhibiting agrarian reform from seeming slow in creating just and prosperous land is the dis-harmonization of regulations, that cause legal gaps. The method used is normative legal research with a statutory regulation approach. The sectoral egos and legal gaps can be put aside and released to joint policies between related institutions, and agrarian reform can achieve its main essence; namely making land a source of the greatest prosperity for people. The results show that regulatory disharmony has narrowed the space for implementing agrarian reform. The advice given in this paper is to create an acceleration of agrarian reform that is right on target in accordance with the targets set, all implementing stakeholders must comply with the norms set out in the Presidential Decree in question. Thus, it is feared that Presidential Decree No. 62 of 2023 will become a regulatory distortion, even though its implementation aimed to provide a regulatory solution in the context of accelerating agrarian reform in Indonesia.

The Incompatibility of Cannabis Factory Farming with the Principles of ESG Risk Management and Impact Investment

Despite massive market growth, the congruence of cannabis industry practices with sustainability goals and minimizing firms’ internal environmental, social, and governance (ESG) risks has not been well assessed. Limited independent evaluations frequently benchmark cannabis companies as having “high” and “severe” ESG risk. Cultivation in Walmart-sized windowless factory farms contributes to particularly intractable environmental impacts, including greenhouse-gas emissions equivalent to three million cars in the US, high indirect water use, significant solid waste production, understudied workplace health risks, and even pressure to extend nuclear power plant lifetimes. Achieving alignment with broader policy goals of net-zero carbon emissions requires that indoor cultivators significantly increase capital expenditures and land use, no examples of which exist at scale. Poor sustainability practices are linked with market frictions and failures, regulatory distortions, lack of transparency, greenwashing, and inaccurate consumer information. Improved practices reduce business risk. Sustainable outdoor cultivation is the only practical way to achieve good environmental ESG metrics and have appeal to impact investors.

Merton Miller's Contribution to Modern Finance

This article sums up the research and writings of the University of Chicago's Merton Miller, winner of the 1990 Nobel Prize in Economics, and widely regarded as the “father of modern finance,” in terms of a single governing principle: the role of arbitrage in ensuring the “efficiency” of financial markets and, more generally, the effectiveness of such markets in promoting economic growth and creating social wealth.Starting with the formulation of Proposition I (also known as the capital structure “irrelevance” proposition) with Franco Modigliani in 1958, Miller's research over the next 40 years is seen as applying—with remarkable clarity and consistency—the principle of arbitrage to the study of many aspects of financial markets. Miller's main accomplishment is seen as making arbitrage arguments the cornerstone of modern finance. The arbitrage proof of Proposition I introduced a new standard in finance—namely, that any finding in financial research deserving serious consideration must have the critical property that it cannot represent opportunities for riskless profit by investors. And arbitrage proves to be a constant theme in Miller's writings, from his work in corporate finance to his later studies of financial innovation, derivatives markets, and financial crashes and crises.Having launched and then presided over the transformation of financial studies from a “glorified apprenticeship system” into a scientific discipline, Miller devoted much of the last 15 years of his life to a different, though clearly related undertaking: the defense of financial markets against the attacks of politicians and regulators, as well as businessmen intent on stifling competition—including hostile takeovers. Whether it was the alleged role of the stock index futures markets in the 1987 market crash, the claims of “overleveraging” in the LBOs of the ‘80s, or the derivatives fiascos in the mid‐'90s, Miller was there to provide careful economic analysis of the problems. In the early ‘90s, he explained why the “myopia” of the U.S. stock market was likely to cause far fewer problems than the “hyperopia” induced by regulatory distortions of the Japanese market. And in one of his last speeches, Miller showed that the primary cause of the recent Asian crisis was not “too much reliance on financial markets,” as claimed by politicians and the popular press, but “too little”—in particular, the heavy dependence on bank financing (particularly state‐owned banks) and the failure to develop alternative sources of capital that continues to depress the Japanese economy.

Age-related expression of prominent regulatory elements in mouse brain: catastrophic decline of FOXO3a.

Aging is associated with changes in regulation, particularly among diverse regulators in the brain. We assayed prominent regulatory elements in mouse brain to explore their relationship to one another, stress, and aging. Notably, unphosphorylated (activated) forkhead transcription factor 3a (uFOXO3a) expressed exponential decline congruent with increasing age-related mortality. Decline in uFOXO3a would impact homeostasis, aging rate, stress resistance, and mortality. We also examined other regulators associated with aging and FOXO3a: protein kinase B (PKB), the mechanistic target of rapamycin (mTOR), 70kDa ribosomal S6 kinase (P70S6K), and 5' AMP-activated protein kinase (AMPK). It would require powerful regulatory distortion, conflicting tradeoffs and/or significant damage to inflict exponential decline of a transcription factor as crucial as FOXO3a. No other regulator examined expressed an exponential pattern congruent with aging. PKB was strongly associated with decreases in uFOXO3a, but the aging pattern of PKB did not support a causal linkage. Although mTOR expressed a trend for age-related increase, this was not significant. We considered that the mTOR downstream element, P70S6K, might suppress FOXO3a, but remarkably, it expressed a strong positive association. The age-related pattern of AMPK was also incompatible. Literature suggested the immunological regulator NFĸB (nuclear factor kappa-light-chain-enhancer of activated B cells) increases with age and suppresses FOXO3a. This would inhibit apoptosis, autophagy, mitophagy, proteostasis, detoxification, antioxidants, chaperones, and DNA repair, thus exacerbating aging. We conclude that a key aspect of aging involves distortion of key regulators in the brain.

Regulatory Distortions and Alternatives

Abstract In this paper we introduce a new distortion risk measure that is motivated by the equivalence made by the regulator between the using the CVaR of 97.5 percent instead of VaR of 99 percent. We introduce a distortion function that matches the value of the normal quantiles with the same for CVaR. We also study this distortion and show it's convex and that it is more risk averse than Wang's distortion.

What is good and bad with the regulation supporting the SME’s credit access

PurposeThis analysis asks whether regulatory capital requirements capture differences in systematic risk for large firms and micro-, small- and medium-sized enterprises (MSMEs). The authors explore whether bank capital regulations intended to support SMEs’ access to borrowing are effective. The purpose of this paper is to find out whether the regulatory design (particularly the estimate of asset correlations) positively affects the lending process to small and medium enterprises, compared to large corporates.Design/methodology/approachThe authors investigate the appropriateness of bank capital requirements considering default risk of loans to MSMEs and distortions in capital charges between MSMEs and large firms under the Basel III framework. The authors compiled firm-level data to capture the proportions of MSMEs and large firms in Italy during 2000–2014. The data set is drawn from financial reports of 708,041 firms over 15 years. Unlike most empirical studies that correlate assets and defaults, this study assesses a firm’s creditworthiness not by agency ratings or by sampling banks but by a specific model to estimate one-year probabilities of default.FindingsThe authors found that asset correlations increase with firms’ size and that large firms face considerably greater systematic risk than MSMEs. However, the empirical values are much lower than regulatory values. Moreover, when the authors focused on the MSME segment, systematic risk is rather stable and varies significantly with turnover. This analysis showed that the regulatory supporting factor represents a valuable attempt to treat MSME loans more fairly with respect to banks’ capital requirements. Basel III-internal ratings-based approach results show that when the supporting factor is applied, the Risk-Weighted-Assets (RWA) differences between MSMEs and large firms increase.Research limitations/implicationsThe implications of this research is that banking regulators to make MSMEs support more effective should review asset correlation estimation criteria, refining the fitting with empirical evidence.Practical implicationsThe asset correlation parameter stipulated by the Basel framework is invariant with economic cycles, decreases with borrowers’ probability of default and increases with borrowers’ assets. The authors found that those relations do not hold. This way, asset correlations fall below parameters defined by regulatory formula, and SMEs’ credit risk could be overstated, resulting in a capital crunch.Originality/valueThe original contribution of this paper is to demonstrate that the gap between empirical and regulatory capital charge remains high. When the authors examined the Basel III-IRBA, results showed that when the supporting factor is applied, the RWA differences between MSMEs and large firms increase. This is particularly strong for loans to small- and medium-sized companies. Correctly calibrating asset correlations associated with the supporting factor eliminates regulatory distortions, reducing the gap in capital charges between loans to large corporate and MSMEs.

Regulators Nurturing FinTech Innovation: Global Evolution of the Regulatory Sandbox as Opportunity Based Regulation

The regulatory sandbox is a real world alternative to regulatory lag. Its emergence as a novel regulatory development responds to challenges faced by FinTech innovators in navigating an unwieldy regulatory landscape not designed with FinTech in mind. Regulatory sandboxes are in operation in developed countries including Australia, Canada, Denmark, Hong Kong, Singapore, Switzerland, the Netherlands, the United Arab Emirates, the United Kingdom, and the United States. Within the EU they are seen in Denmark, Hungary, Lithuania, Poland and the Netherlands. The concept has also gained traction with regulators in developing countries such as India, Indonesia, Malaysia, Mauritius and Thailand. Not only is the regulatory sandbox an experimental space for firms testing innovative FinTech products and services, it is also a novel regulatory experiment for regulators. This article advances the available literature through focusing on the contradictions inherent in the role of the regulator in administering a regulatory sandbox. It characterises the regulatory sandbox as a form of agile, opportunity-based regulation, distinguished by a regulatory approach that is concerned with actively supporting innovators in nurturing cutting-edge innovation to benefit innovators, consumers, investors, and the wider economy. This is path-breaking regulatory territory. In its provision and design a regulatory sandbox phenomenon performs a crucial positioning function in relation to a given financial system’s receptivity to FinTech business. An economic, pro-innovation agenda is at work. Distinct policy questions are therefore raised regarding the legitimate role of public gatekeeper financial services regulators operating regulatory sandboxes. The role of a regulatory sandbox in nurturing and expanding competition suggests a public interest role in the interests of consumer choice, price and efficiency rather than simply on risk minimisation. However, pressure on regulators to produce sandbox successes and to compete with other sandboxes may influence the exercise of regulatory discretion and produce regulatory distortions that affect competition in FinTech markets.

Mortgage Markets with Climate-Change Risk: Evidence from Wildfires in California

This paper studies wildfires in California from 2000 to 2018 using comprehensive merged data on fires, mortgage and property characteristics, and weather. We find a significant increase in mortgage delinquency and foreclosure after a fire, but these effects decrease in the size of the fire, which we argue results from coordination externalities afforded by large fires. Recent large losses, combined with regulatory distortions, cast doubt on the continued ability of insurance companies to absorb fire-related losses. This paper provides central banks and insurance regulators with a framework for evaluating proposed banking and insurance-company models, similar to bank stress-testing.

The economics of investor protection: ISDS versus national treatment

Investor-state dispute settlements (ISDS) are supposed to protect foreign investors against domestic policies causing “unjustified” harm. This paper scrutinizes the effects of ISDS and national treatment provisions in a two-period model where foreign investment is subject to a hold-up problem. It shows that ISDS may increase welfare, but comes with additional regulatory distortions in the first period. A national treatment provision avoids these regulatory distortions, but implies entry distortions because it makes the hold-up problem also apply to domestic firms. If the domestic regulatory framework applies to many domestic firms, a national treatment provision welfare-dominates ISDS.

"Regulators Nurturing Fintech Innovation: Global Evolution of the Regulatory Sandbox as Opportunity-Based Regulation"

"The regulatory sandbox is a real-world alternative to regulatory lag. Its emergence as a novel regulatory development responds to challenges faced by FinTech innovators in navigating an unwieldy regulatory landscape not designed with FinTech in mind. Regulatory sandboxes are in operation in developed countries including Australia, Canada, Denmark, Hong Kong, Singapore, Switzerland, the Netherlands, the United Arab Emirates, the United Kingdom, and the United States. Within the European Union they are seen in Denmark, Hungary, Lithuania, Poland and the Netherlands. The concept has also gained traction with regulators in developing countries such as India, Indonesia, Malaysia, Mauritius and Thailand. Not only is the regulatory sandbox an experimental space for firms testing innovative FinTech products and services, it is also a novel regulatory experiment for regulators. This article advances the available literature through focusing on the contradictions inherent in the role of the regulator in administering a regulatory sandbox. It characterises the regulatory sandbox as a form of agile, opportunity-based regulation, distinguished by a regulatory approach that is concerned with actively supporting innovators in nurturing cutting-edge innovation to benefit innovators, consumers, investors, and the wider economy. This is path-breaking regulatory territory. In its provision and design, a regulatory sandbox performs a crucial signalling function in relation to a given financial system’s receptivity to FinTech business. An economic, pro-innovation agenda is at work. Distinct policy questions are therefore raised regarding the legitimate role of public gatekeeper financial services regulators operating regulatory sandboxes. The role of a regulatory sandbox in nurturing and expanding competition suggests a public interest role in the interests of consumer choice, price and efficiency rather than simply on risk minimisation. However, pressure on regulators to produce sandbox successes and to compete with other sandboxes may influence the exercise of regulatory discretion and produce regulatory distortions that affect competition in FinTech markets."

Dynamic Regulatory Distortions: Coal Storage at U.S. Power Plants

This paper quanties the dynamic productive eciency gains in input procurement associated with introducing market mechanisms into a formerly price regulated industry. I do so within the context of the U.S coal-red power generation sector from 1983-2012. I formulate and estimate a dynamic plant-level model of coal purchase and storage decisions. Holding constant the plant’s pattern of input prices and output, I nd that it costs a regulated plant roughly 3% more per month to procure and store coal relative to the same plant facing market prices. This amounts to roughly $35 million per month saved in procurement costs if all price-regulated coal-red plants in the U.S instead faced market prices. This regulatory distortion stems primarily from two sources: regulators pass through a percentage of fuel purchase costs to electricity consumers and provide a working capital allowance for coal inventories held on-site. Empirically, I nd that the rst source is more important; changes in when and how much coal a plant buys under output price regulation explains more of the 3% regulatory distortion relative to changes in the level of inventories held. One of the primary concerns regarding output price regulation has been distortions in the level of investment due to the regulated return provided on capital; my ndings indicate that regulatory distortions to the timing of capital investments may be costlier.

The reconstruction of business interests after the ISI collapse: unpacking the effect of institutional change in Chile and Uruguay

This paper focuses on understanding the different evolutions of business’ associational paths in post-Import Substitution Industrialization (ISI) Chile and Uruguay, offering an explanation at the crossroads of the institutional change and international trade literatures. The argument is that the different forms in which ISI institutions were transformed during the liberalisation period facilitated a greater mobility of factors to different degrees, triggering divergent enduring associational strategies on the part of business. The proliferation of narrow-based special benefits during the ISI fuelled preferences for the formation of sector-based coalitions oriented towards rent-seeking activities. Nevertheless, while ISI regulations were displaced in Chile during the military period, Uruguay followed a gradual process of layering of new rules alongside old ones. These diverging strategies, having different effect on established inter-sectoral regulatory distortions, propitiated alternative associational paths of local business.

Shock Therapy and Entrepreneurial Flare #Brexit

PurposeMuch has been written about trade deal opportunities after Brexit (e.g. Minford et al., 2017; Singham and Tylecote, 2018) but much less about envisaged “supply side mechanisms” that would translate a Brexit shock into improved UK competitive performance. Indications as to the supply side mechanisms involved can be found in some pro-Brexit writings and speeches and revolve around cutting regulation and reducing taxation, to spur innovation entrepreneurship. The authors contend that these measures align to a broad set of policy measures associated with Economic Shock Therapy, the Laffer Curve and the associated “Washington Consensus” (Williamson, 2005). The authors are looking to stimulate a conversation around whether these measures are most likely to stimulate entrepreneurial innovation and growth. The authors open by contrasting these concepts to growth equilibrium dynamics drawn from Wicksell, Keynes and Schumpeter – and by implication dynamic Walrasian General Equilibrium – to pose the question, is entrepreneur-led growth best led via slashing regulations and taxes or by focussing on correcting existing market failures? The purpose of this paper is to promote controversy and debate as to which “supply side measures” are most effective in enabling entrepreneurial growth.Design/methodology/approachThe authors briefly review the pro-Brexiteer economic framework and relate this to broader Economic Shock Therapy and Laffer Curve concepts; how these have been applied and how some argue they can become “supply side” enablers in a positive Brexit innovation and entrepreneurship transformation. By drawing upon fundamental economic relationships such as Wicksell’s (1898) “Natural Rate of Interest”, the authors highlight the importance of information asymmetry and regulatory distortion in financial markets, resulting in some entrepreneurs (and associated innovations) failing to receive the capital their project merit. The authors pose the question, whether Shock Therapy, Laffer Curve type tax cuts and any Brexit “bonfire of regulation” will raise entrepreneurial growth and success.FindingsBoth Shock Therapy and Laffer Curve inspired tax cuts have a patchy record of success, despite notable achievements in post-1991 Poland. The authors stress entrepreneurs drive innovation and growth, and a key support to them requires correcting “access to finance” market failures. It is questionable if Economic Shocks contribute anything to resolving this fundamental problem.Originality/valueThe authors open the supply side debate on anticipated “Brexit Transformation” in the context of long standing (some maybe long forgotten) theoretical understandings, thereby posing the question as to whether potential Brexit-related deregulation, tax cuts and “Economic Shock” therapy are likely to raise entrepreneurial competitive advantage and success rates. Market failure in financial market support for small firm growth and innovation needs are highlighted. Arguably, economic growth and innovation would be better sustained by addressing these failures, than introducing the “unknowns” and risks associated with a substantial Economic Shock.

The Economics of Investor Protection: ISDS versus National Treatment

This paper scrutinizes the effects of investor-state dispute settlements (ISDS) and national treatment provisions in a two-period model where foreign investment is subject to domestic regulation and a holdup problem. It shows that ISDS can mitigate the holdup problem and increases aggregate welfare, but comes with additional regulatory distortions for the first period. A national treatment provision avoids these regulatory distortions, but implies entry distortions because it makes the holdup problem also apply to domestic firms. If the domestic regulatory framework applies to many domestic firms, a national treatment provision welfare-dominates ISDS.

Freedom to Flourish: UK Regulatory Autonomy, Recognition, and a Productive Economy

Withdrawal from the EU must mean regulatory autonomy for the United Kingdom – sovereignty over its regulations. This reflects the democratic mandate of the 2016 referendum and the 2017 manifesto commitments of the Conservative and Labour Parties, and will propel growth and competition in the economy. It is also necessary for the UK to be able to sign advanced trade agreements with countries around the world. The United Kingdom has a unique opportunity to use withdrawal from the EU to grow its economy and become considerably more productive. It is vital that nothing is done to take these benefits off the table. But for pro-competitive regulation, regulatory autonomy is vital. In her Lancaster House speech in 2017, the Prime Minister outlined that Brexit would mean legal independence through an end to European Court of Justice jurisdiction in the UK, and that the UK must be free to execute an independent trade policy, striking agreements with countries outside the EU, outside the Customs Union’s Common External Tariff. In her speech at the Mansion House in March 2018, she stated that this meant our regulations would ‘achieve the same outcomes’ as EU law, but need not be identical. To deliver an independent trade policy and substantially more prosperous economy, the UK must have the ability to change its regulatory system from the EU’s acquis when it seeks to do so, and when beneficial for trade agreements. A 30% reduction in regulatory distortions between key trading partners by 2034 could mean GDP up to 7.25% higher than it would otherwise have been. The UK must be able to deliver the following five points: 1) Autonomy for the UK to make its own regulation; 2) Autonomy for the UK to set its own standards; 3) Autonomy for a UK system of conformity assessment; 4) Unilateral recognition by the UK of EU regulations, standards, and its conformity assessment system; 5) Seek recognition by the EU of the UK’s regulations, standards, and its conformity assessment system

MACROFINANCIAL RESPONSIBILITY OF CENTRAL BANKS: THEORETICAL FOUNDATIONS AND INSTITUTIONAL DILEMMAS

Introduction. Postcrisis tendency to enhance central bank’s macrofinancial responsibility should be related to real-financial inter-linkages rethinking but not to activistic demand management. Different approaches on how price stability and financial stability are inter-related, as well, as different institutional modalities of how to achieve them are making more complicate optimal institutional design of central bank with increased zone of responsibility. Purpose. Taking into account different macroeconomic viewpoints on the role of financial instability in macroeconomic fluctuations and institutional challenges for central bank independence the purpose of the paper is to validate that enhanced macrofinancial responsibility of central banks should be balanced by additional measures in direction to facilitate autonomous regulatory status. Results. Different views on how to enhance macroeconomic stability and what the role of central banks in new macrofinancial environment provide serious challenge for optimal designing of central bank’s macrofinancial responsibility. The problem not only relate to how price and financial stability are inter-related but also to how define the wrong way policy then price and financial stability are in non-linear relations. The difficulties in this segment may affect far reaching political consequences while assessing central bank from political economy point of view. Also it is necessary to take into account that macroprudential toolkit may overlap with monetary policy instruments providing additional regulatory distortions. Clear institutialisation of relations between price and financial stability responsibilities will help to avoid political economy type of manipulations with central bank new tasks. Priority of price stability should be kept while financial stability mandate should be clarified and tied to macroprudential regulation. In the same time more active central bank’s participance in the post-crisis economy should be based not on standard Keynesian activism but on enhanced financial responsibility balanced with protection of central bank independence in new regulatory areas. Conclusions. It the article it is stressed that enhanced macrofinancial responsibility should be based on unchanged priority of price stability mandate, increased level of central bank independence and coordination between monetary and macroprudential policies. It is shown that vulnerability of macrofinancial responsibilities to political pressure is going to increase. Political independence of central banks should protect them in the area of price stability and financial stability all together.

Financial Inclusion, Governance and Institution: Evidence from Developing Economies

This paper argues that strong economic governance and institution are important elements in improving financial inclusion especially in developing countries with relatively large segment of poor population because markets, and economic activity and transactions more generally, cannot function well in its absence. Financial inclusion has become an important global agenda and emerging priority for policymakers and regulators in financial sector development in ensuring sustainable long-term economic growth. Many factors hinder the access and use of financial services among the population in many part of the world. The main obstacles can broadly be characterised as follows: i) social, macroeconomic, and infrastructure features; ii) institutional weakness; iii) obstacles arising from banking activities; and iv) regulatory distortion. Governments are not solely responsible for designing an appropriate policy framework that encourages access to financial services, but financial institutions offering these services must also play a decisive role. The literature on financial inclusion has identified two major factors that drive financial inclusion across countries: i) structural factors, which primarily determine the costs of providing financial services to the population; and ii) policy-related factors have also been found to be relevant in creating an enabling environment for financial inclusion (Love and Martinez Peria 2012). However, research addresses on the latter is limited particularly pertaining to developing countries. Without deeper understanding on these issues can creates the condition for ill-informed policy designs. Hence, this paper contribute to literature by examining the interlinkage between financial inclusion, institutions, governance and Islamic financial services industry using panel data analysis. The research will provide understanding of the impact surrounding governance and institutional factors in improving financial inclusion. This paper utilizes the data on individuals’ characteristics in the Global Findex database of the World Bank across 69 developing and emerging economies to examine how different countries’ characteristics are associated with financial inclusion. Then, this paper uses data from Worldwide Governance Indicators and The Heritage Foundation to proxy for governance and institutional characteristics. We use principle component analysis, perform baseline model using probit estimations to explain measures of financial inclusion, and then augmented the model with governance and institutional variables. The result is expected to provide the answer to what degree do financial inclusion patterns vary across different countries and individual-level characteristics. In addition, the result is expected to draw conclusions on the importance of governance and institutional factors, and to what extent institutions matters in improving financial inclusion.

Mergers between regulated firms with unknown efficiency gains

In an industry where regulated firms interact with unregulated competitors, we investigate the welfare effects of a merger between regulated firms when efficiency gains are uncertain before the merger and their realization becomes private information of the merged firm. The optimal merger policy trades off potential efficiency gains against regulatory distortions from informational problems. We show that, as a consequence of this trade-off, fiercer competition between unregulated firms induces a more lenient merger policy. However, if the regulated firms diversify into a competitive segment of the market, softer competition can relax the optimal merger policy.

Regulatory Firm Size Distortions and the Buffering Effect of Outsourcing

There is a growing concern that size-contingent regulatory taxes are causing considerable mis-allocation of resources from large efficient firms to small inefficient firms, with significant implications for welfare and aggregate productivity. Using a monopolistic competition framework, I highlight outsourcing as a much neglected channel through which firms could potentially circumvent the regulation. Specifically, the regulated firms will outsource instead of downsizing to preserve their large scale of operation without assuming the extra tax burden. The reallocation of resources in this economy is mostly vertical, from downstream firms to suppliers, and much less top-down. A series of benchmark simulations show that ignoring this possibility leads to gross underestimation in the welfare effects of size-dependent regulations. The conclusions also make an argument for promoting outsourcing in tightly regulated economies.

Urban Land Management: A Legal & Administrative Perspective

My paper revolves around the question: What ails urban land management in India? In the process, we look at the history of urban land management in this country, the problems that continue to dog us, and the remedial measures that may help alleviate or solve our problems. Land management in urban India faces 3 distinct challenges: The chief among these is the quintessential demand vs supply problem; related is the Nature & Quantum of Regulation and the third is the Social perception and its Impact of land. So right away, we realize that the issues relating to land management are not just land acquisition problems. It encompasses acquisition no doubt but goes way beyond it. To understand this in a coherent manner, we need to look at the history of land management in India. With history doing its bit to constrain land markets, economics took care of the rest. There are certain characteristics of land, and urban land in India in particular, which discourage commodification and hence constrain its marketability. I categorize these as inherent problems of and, institutional (by this I mean administrative) limitations, and finally, Legal & Regulatory distortions. What is the way forward? The first thing to understand is that the land question has become so complicated and complex, reform has to be necessarily step by step and gradual. More important than the measures to be taken is a change in the underlying thinking philosophy on land. The first step is a realization of the need to build up robust land markets. Land, labour, capital are the 3 major factors of production; we have achieved a measure of deregulation in capital & labour, Land deregulation is the crying need now. It also needs an acceptance that the gradual commodification of urban land is both inevitable and desirable. Rather, the path forward should be the gradual easing of stringent and elaborate procedures for converting agricultural Land for NA Uses or restricting sale and transfer of land are irrelevant in urban areas. At the same time a balance has to be achieved between the need for land for developmental activities and the need to protect the interests of those impacted by the acquisition of the land — landowners, tenants, landless labourers, and others whose livelihoods depend on the land.