Regulatory Independence, Investment and Political Interference: Evidence from the European Union

This paper analyses and empirically investigates the impact of "modern" regulatory governance - i.e. the inception of Independent Regulatory Agencies (IRAs) - on the investment decisions of a large sample of European publicly traded regulated firms from 1994 to 2004. Because these firms provide essential services, governments are highly sensitive to regulatory decisions and outcomes. We therefore also investigate the impact of governments' political influence, controlling for residual state ownership and market liberalization. To account for potential endogeneity of the key institutional variables, we draw our identification strategy from the political economy literature. Our results show that regulatory independence has a positive impact on firm investment. We also find that government interference generates instability and uncertainty in the regulatory framework, thus undermining investment incentive

Access Regulation, Financial Structure and Investment in Vertically Integrated Utilities: Evidence from EU Telecoms

We examine theoretically and empirically the relationship between access regulation, financial structure and investment decisions in network industries, analyzing if financial variables can be used as a strategic device to influence the regulator's price setting decisions. Using a panel of 15 EU Public Telecommunication Operators (PTOs) over the period 1994-2005, we first investigate the determinants of financial leverage and investment, and then test the relationship between leverage, regulated (wholesale and retail) charges and investment. Moreover, our model suggests that if leverage influences the regulated access charges, then it will also impact competition in the downstream segment. Therefore, we also investigate the impact of the PTO's leverage on market competition. The results show that leverage positively affects regulated rates, as well as the PTOs' investment rate, as predicted by Spiegel and Spulber (1994). Moreover, higher leverage also leads to higher access charges and an increase in leverage is followed by a decrease in the number of competitors and by an increase of the incumbent's market share. This suggests that the strategic use of debt to discipline the regulator's lack of commitment within a vertically integrated network industry may somewhat impair or delay competition in the retail segment, but has a favorable counterpart in mitigating the underinvestment proble

Regulatory Independence, Investment and Political Interference: Evidence from the European Union

This paper analyses and empirically investigates the impact of “modern” regulatory governance - i.e. the inception of Independent Regulatory Agencies (IRAs) - on the investment decisions of a large sample of European publicly traded regulated firms from 1994 to 2004. Because these firms provide essential services, governments are highly sensitive to regulatory decisions and outcomes. We therefore also investigate the impact of governments’ political influence, controlling for residual state ownership and market liberalization. To account for potential endogeneity of the key institutional variables, we draw our identification strategy from the political economy literature. Our results show that regulatory independence has a positive impact on firm investment. We also find that government interference generates instability and uncertainty in the regulatory framework, thus undermining investment incentives

Artificial intelligence, firms and consumer behavior: A survey

The current advances in Artificial Intelligence (AI) are likely to have profound economic implications and bring about new trade-offs, thereby posing new challenges from a policymaking point of view. What is the impact of these technologies on the labor market and firms? Will algorithms reduce consumers' biases or will they rather originate new ones? How competition will be affected by AI-powered agents? This study is a first attempt to survey the growing literature on the multi-faceted economic effects of the recent technological advances in AI that involve machine learning applications. We first review research on the implications of AI on firms, focusing on its impact on labor market, productivity, skill composition and innovation. Then we examine how AI contributes to shaping consumer behavior and market competition. We conclude by discussing how public policies can deal with the radical changes that AI is already producing and is going to generate in the future for firms and consumers

Setting network tariffs with heterogeneous firms: The case of natural gas distribution

The appropriate treatment of firm heterogeneity plays a crucial role in the application of benchmarking analyses for regulatory purposes. Within the realm of two-step approaches, this paper challenges the widespread adoption of single-variable clustering: heterogeneity has often multiple sources, which calls for more sophisticated clustering methodologies. In fact, reliable cluster-specific rankings provide firms’ management with more realistic objectives as well as freedom to identify the appropriate strategies to improve efficiency. In order to provide regulatory guidance on this issue, we use a unique dataset of detailed accounting data and unbundled network-related costs for a panel of Italian gas distributors and we test two alternative methods: a hybrid clustering procedure (HCP) and a latent class model (LCM). Our results show that HCP and LCM perform better than size segmentation in the identification of classes, thereby leading to more reliable production frontiers, but do not support a conclusive preference for one or the other method. While both methods are sensitive to outliers, LCMs seem to provide deeper insights on the drivers of firm inefficiency. However, they also present stationarity and convergence issues, which might favour the implementation of HCP methods. Furthermore, the degree of discretionary judgement in the modelling decisions (e.g., model specification and choice of the partition) is slightly higher with LCMs than with HCP. In this respect, the HCP, with its lower modelling and analytical complexity, may feature as a more appealing option, facilitating the interactions between regulator and firm managers