Home-Bias Effects and the Leadership Role of the EC in Regulation

32 Pages Posted: 12 Jun 2008

Date Written: June 11, 2008

Abstract

The existence of foreign firms in a regulated market creates a bias in the regulatory level, from the social point of view, whenever firms' profits are valued in the welfare measure and domestic firms count more than foreign ones.

Taking a supranational agency as a (Stackelberg) leader (like the European Commission) improves upon the no-intervention case. In equilibrium, the guidelines of the European Commission will push for less regulation than the national regulatory authorities will actually implement. This is termed the leadership role. The regulatory level announced by the supranational agency is actually higher than the second-best value it would choose. The home bias implies a strategic incentive to distort the announced position of the supranational agency in order to induce further adjustment in national countries.

Some mechanisms set in place by the European Commission (like the consultation procedure in telecommunications) can also be seen as having a monitoring role. In this respect, a notification procedure is, under certain conditions, superior to an ex-post verification (and correction) procedure.

Keywords: regulation, institutional design, telecommunications

JEL Classification: L51

Suggested Citation

Pita Barros, Pedro Luis, Home-Bias Effects and the Leadership Role of the EC in Regulation (June 11, 2008). Available at SSRN: https://ssrn.com/abstract=1143280 or http://dx.doi.org/10.2139/ssrn.1143280

Pedro Luis Pita Barros (Contact Author)

Universidade Nova de Lisboa ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+351 21 383 3624 (Phone)
+351 21 388 6073 (Fax)

HOME PAGE: http://ppbarros.fe.unl.pt

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