Regulatory Spillover Research Articles

Regulatory politics and hybrid governance: the case of Brazil’s Amazon Soy Moratorium

This paper analyses the unique hybrid governance of Brazil’s Amazon Soy Moratorium (ASM) in regulating soybean production in the Amazon, where private actors have created a state-like ban on commodity production to reduce deforestation that goes beyond national law. Despite existing research regarding impact assessment, the study aims to fill knowledge gaps in explaining the ASM’s alliance-building processes, its longstanding maintenance, and its potential for regulatory replicability. Informed by the application of the Baptist and Bootlegger political economic theory of regulation and empirical data from qualitative interviews and document analysis, we provide an actor-centered explanation of the design, adoption, and maintenance of the ASM over a 19-year timeframe. Our results show how NGOs and businesses had opposite motivations and negotiated their roles to form a successful strategic alliance, reinforced by the inclusion of third parties (e.g., technical and governmental actors) to assist in its monitoring and transparency. Developed as an exclusive private market regulation, the ASM agreement, however, relies on a policy mix: private and public actors play a role in implementation, which includes assisting and relying on existing public policies, instruments, and official data. This policy mix was necessary for the ASM’s noteworthy hybrid and long-term governance. Its successful formation in 2006 was enabled by factors including an economic crisis, foreign pressure linked with national enforcement failure, and, most importantly, the Amazon scope. Our analysis shows who gains or loses from the regulatory design. Furthermore, we shed light on the biggest regulatory spillover, to the Cerrado, where the failed attempt at replicability emphasizes the regulatory uniqueness of the ASM. The study concludes with a discussion of what will help or hinder the ASM’s longevity, providing lessons for similar regulatory mechanisms on forest-risk agricultural production, such as EU’s recent Regulation on Deforestation-free Products.

Environmental regulation, regulatory spillovers and rent-seeking

Environmental regulation, regulatory spillovers and rent-seeking

Filling the Void: How E.U. Privacy Law Spills Over to the U.S.

There is mounting evidence that the EU’s General Data Protection Regulation (GDPR) has influenced the information privacy policies and practices that firms adopt in relation to people outside of the E.U., even when that is not required by the E.U. regulation. We use a hand-coded dataset of privacy policies from firms’ U.S. and E.U.-facing websites to document and explain these kinds of international regulatory spillovers. Our findings are consistent with the hypothesis that spillovers are driven by the costs of complying with different standards in different parts of the same firm. In fact, 75% of the firms in our sample use the same privacy policy for their U.S. and E.U.-facing websites. At the same time, our findings do not support the conclusion that firms comply with the GDPR in their U.S.-facing privacy policies out of fear of being sanctioned if the policy is somehow applied to E.U. residents. Finally, we find that spillovers are more prevalent among firms with a physical presence in the E.U. This suggests that international networks of compliance professionals may play a significant and understudied role in regulatory compliance, perhaps by providing channels for norms and resources to move across borders.

Cross-border regulatory spillovers and macroprudential policy coordination

We develop a core–periphery model with financial frictions and cross-border banking to assess the magnitude of regulatory spillovers and the gains from macroprudential policy coordination. A core global bank lends to its affiliates in the periphery and banks in both regions are subject to risk-sensitive capital regulation. Following an expansionary monetary policy in the core, a countercyclical response in capital requirements in that region induces the global bank to increase cross-border lending. We calculate welfare gains associated with countercyclical capital buffers under a range of policy regimes, including independent policymaking, full coordination, and reciprocity—a regime in which capital ratios set in the core are imposed on the global bank’s affiliates abroad. One of our key results is that, even when regulatory spillovers are strong, reciprocity can make all parties better off if regulators attach a sufficient weight to financial stability considerations. With a standard, utility-based welfare criterion, reciprocity may also perform better than independent policymaking when regulatory spillovers are weak.

Regulatory Spillover and Consumer Welfare: The Case of Pharmaceutical Market Exclusivity Policy

Regulatory Spillover and Consumer Welfare: The Case of Pharmaceutical Market Exclusivity Policy

The Regulatory Spillover Effects of Classifying Municipal Bonds as High-Quality Liquid Assets

The Regulatory Spillover Effects of Classifying Municipal Bonds as High-Quality Liquid Assets

Spillover Effects and Performance Optimization of Air Pollution Control Policies: Evidence from the Yangtze River Delta Region, China

Government policy is crucial to control air pollution, while industrial structure upgrading and green technology progress are needed to optimize air pollution control performance (APCP). Meanwhile, policy spillovers from one region to another affect the APCP. This study applied systems theory to explain the mechanisms that drive both environmental policy spillover and APCP. We evaluated the APCPs of 41 cities in the Yangtze River Delta region from 2006 to 2020 using a super-efficiency SBM-DEA model. We then analyzed the paths by which industry and technology drive APCP using a spatial Durbin model (SDM) and investigated heterogeneity across different regional governance groups. The effects generated by the regulatory spillover of air pollutants were decomposed into four subsystems: chain transmission effect, vibration effect, ripple effect, and halo effect. The results show the following: (1) Throughout the study period, the APCP of most of the regional governance groups in the Yangtze River Delta region showed a fluctuating trend with continuous improvement. The APCP was higher and more stable in the Zhejiang Province in the southeast, and lower and more drastic in the Jiangsu and Anhui Provinces in the north, and shows a significant positive spatial correlation. (2) Industrial structure upgrading and green technology progress had different impact paths on the APCP. Industrial structure upgrading had a significant indirect contribution to the APCP, but the direct effect was not significant. Green technology progress had a significant direct inhibitory effect and an indirect promoting effect on the APCP. (3) In the optimization path of the APCP, industrial structure upgrading played a more important role than green technology progress, but they did not reinforce each other’s enhancement of the APCP. (4) There was regional heterogeneity in the impacts of industry and technology on the APCP. The paths and actual effects of industry and technology on the APCP varied greatly among different regional governance groups.

Regulatory Spillovers in Local Mortgage Markets

Abstract We document novel evidence on the spillover effect of a corporate control regulation on local mortgage markets. We find that banks directly targeted by the Sarbanes-Oxley Act (SOX) to rectify their internal control weaknesses reduce mortgage originations following the regulation’s enactment. This causes mortgage credit to be reallocated toward other banks in the same local markets: while competing public banks expand lending to safer borrowers, private banks increase lending toward risky applicants. Consequently, loans originated by private banks in spillover counties report higher default rates. (JEL E51, G21, G38)

Trading spaces: Medicare's regulatory spillovers on treatment setting for non-Medicare patients

Medicare pricing is known to indirectly influence provider prices and care provision for non-Medicare patients; however, Medicare's regulatory externalities beyond fee-setting are less well understood. We study how physicians’ outpatient surgery choices for non-Medicare patients responded to Medicare removing a ban on ambulatory surgery center (ASC) use for a specific procedure. Following the rule change, surgeons began reallocating both Medicare and commercially insured patients to ASCs. Specifically, physicians became 70% more likely to use ASCs for the policy-targeted procedure among their non-Medicare patients. These novel findings demonstrate that Medicare rulemaking affects physician behavior beyond the program's statutory scope.

Regulatory Spillover and Workplace Racial Inequality

This article suggests that regulations targeting the U.S. public sector may influence racial inequality in the private sector. Since the 1990s, nine states have banned affirmative action practice in public universities and state governments. I theorize that although these bans have no legal jurisdiction over private-sector firms, they could influence such firms normatively. After such a ban, executives who have been skeptical of Equal Employment Opportunity (EEO) policies may feel more normative license to reduce commitment to EEO practices. Using a difference-in-differences estimation on 11,311 firms from 1985 to 2015, I find that the bans are indeed associated with slower racial progress in private-sector firms: after a state adopts the affirmative action ban, growth in the proportion of Black managers in establishments with corporate headquarters in that state slows by more than 50 percent, and this slowdown is mostly concentrated in firms with politically conservative CEOs. These findings suggest a mechanism for the persistence of racial inequality and show that regulations can influence actors well beyond legal jurisdictions.

Regulatory Spillovers and Data Governance: Evidence from the GDPR

Privacy regulation by the European Union has had effects for websites beyond the European Union and lead to an increase in market concentration of web technology vendors

Regulatory Spillovers in Local Mortgage Markets

Regulatory Spillovers in Local Mortgage Markets

International Investment Policy and the Coming Wave of Data-Flow Disputes

The ability to move digital data internationally has become an asset to countless businesses. Yet an increasing number of countries’ data regulations hinder these cross-border data flows. As such, many have speculated that companies could protect their interests in data flows through international investment law, a regime that lets companies sue foreign governments for harm to private assets. Yet the literature has largely been cursory or equivocal about these suits’ likely success. This Article argues that, under current law, such suits have a strong—if not unassailable—legal basis. Critically, the reality of global data regulation and digital commerce means such suits are only likely to arise in specific contexts. In those contexts, a close reading of the current law reveals that companies will have well-grounded arguments under the treaties, caselaw, and policy of today’s investment regime. The regime’s history also bodes well for them. The real viability of these suits has counterintuitive, opposing implications. On the one hand, such suits could bolster the resilience of—and even catalyze—beneficial domestic and international data regulation by solidifying emerging legal norms. On the other, they could deter countries from adopting such regulation. This negative effect results from the risk that international investment law, by superintending data regulation, will become a form of data regulation itself. To prevent this regulatory spillover, investment tribunals in data-flows cases should reinvigorate a longstanding but neglected tool in the international-investment caselaw: the Salini test. A binding application of Salini in data-flows cases can preserve international investment law’s ability to strengthen beneficial data regulation while ensuring the investment regime remains centered on its economic domain: capital flows—not data flows.

Regulatory spillover and climate co-benefits: Evidence from New Source Review lawsuits

Though policies on greenhouse gas emissions have been shown to generate benefits in reducing local pollutants such as SO2 and NOx, spillover benefits in the reverse direction have not been well studied. This paper estimates one such spillover by examining how SO2 and NOx regulations of the New Source Review affect CO2 emissions of US power plants. We address the ambiguity surrounding the stringency of enforcement of the regulations by using a discrete-time duration model that allows us to predict the likelihood of being named in a lawsuit, and to use this likelihood as a continuous treatment variable. We find that a 1 percent increase in the probability of being sued reduces CO2 emissions by 0.3 percent, an effect comparable to a carbon tax of $10 per ton. Further decomposition analysis suggests that most of these carbon co-benefits arise from the shutdown of both coal-fired-only power plants and certain power-generating units.

Trading Spaces: Medicare's Regulatory Spillovers on Treatment Setting for Non-Medicare Patients

Trading Spaces: Medicare's Regulatory Spillovers on Treatment Setting for Non-Medicare Patients

Ban, Boom, and Echo! Entrepreneurship and Initial Coin Offerings

Regulatory spillovers occur when regulation in one country affects either the expected regulatory approach and/or entrepreneurial finance markets in other countries. Drawing on institutional theory, we investigate the global implications of a regulatory spillover on entrepreneurship. We argue that regulatory spillovers have both short- and long-term effects on the number and quality of entrepreneurial finance initiatives such as Initial Coin Offerings (ICOs). Based on a large-scale sample of ICOs in 108 countries, we find that a regulatory ban of ICOs in one country causes a short-term increase in the number of low-rated ICOs in other countries and a long-term drop in the number of ICOs, especially low-rated, which increases the average ICO rating. That is, a restrictive regulation triggered a process of increased market selection.

Mortgage Securitization and Shadow Bank Lending

AbstractWe show how securitization affects the size of the nonbank lending sector through a novel price-based channel. We identify the channel using a regulatory spillover shock to the cross-section of mortgage-backed security prices: the U.S. liquidity coverage ratio. The shock increases secondary market prices for FHA-insured loans by granting them favorable regulatory status once securitized. Higher prices lower nonbanks’ funding costs, prompting them to loosen lending standards and originate more FHA-insured loans. This channel accounts for 22% of nonbanks’ growth in overall mortgage market share over 2013–2015. While the shock creates risks for financial stability, homeownership also increases.

Regulatory Spillovers in Common Audit Markets

We find that Sarbanes–Oxley (SOX) had two significant effects on the audit market for nonpublic entities. The first short-run effect stems from inelastic labor supply coupled with an audit demand shock from public companies. As a result, private companies reduced their use of attested financial reports in bank financing by 12%, and audit fee increases for nonprofit organizations (NPOs) more than doubled. The second long-run effect was a transformation in the audit supply structure. After SOX, NPOs were less likely to match with auditors most exposed to public companies, whereas auditors increasingly specialized their offices based on client type. Audit market concentration for NPOs dropped by more than one-half within five years of SOX and remained at this level through the end of our sample in 2013, whereas the number of suppliers increased by 26%. Our results demonstrate how regulation directed at public companies generates economically important spillovers for nonpublic entities. This paper was accepted by Suraj Srinivasan, accounting.

Cross-border effects of regulatory spillovers: Evidence from Mexico

This paper studies the spillover of a macroprudential regulation in Spain to the Mexican financial system via Mexican subsidiaries of Spanish banks. The spillover caused a drop in the supply of household credit in Mexico. Municipalities with a higher exposure to Spanish subsidiaries experienced a larger contraction in household credit. These localized contractions caused a drop in macroeconomic activity in the local non-tradable sector. Estimates of the elasticity of loan demand by the non-tradable sector to changes in household credit supply range from 1.2–1.8. These results emphasize cross-border effects of regulations in the presence of global banks.

Trading Spaces: Medicare’s Regulatory Spillovers on Treatment Setting for Non-Medicare Patients

Medicare pricing is known to indirectly influence provider prices and care provision for non-Medicare patients; however, Medicare’s regulatory externalities beyond fee-setting are less well understood. We study how physicians’ outpatient surgery choices for non- Medicare patients responded to Medicare removing a ban on ambulatory surgery center (ASC) use for a specific procedure. Following the rule change, surgeons began reallocating both Medicare and commercially insured patients to ASCs. Specifically, physicians became 70% more likely to use ASCs for the policy-targeted procedure among their non-Medicare patients. These novel findings demonstrate that Medicare rulemaking affects physician behavior beyond the program’s statutory scope. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.