TILEC's new organization

TILEC has grown considerably since it was established in 2002. Growth requires change, which is why since 1 September 2008, TILEC operates according to a new administrative structure. The most prominent change is the creation of a new position of academic manager, filled by Ilse van der Haar. Ilse has concurrently taken up a position as assistant professor in the department of European and International Public Law at Tilburg University, where she specialises in competition law and electronic communications regulation. The two founding directors of the institute, Pierre Larouche (law) and Eric van Damme (economics) have stepped away from day-to-day
management, and now concentrate on the strategic, long-term aspects of TILEC. The day-to-day management tasks have been taken over by the academic manager. Outside parties that would like to contact TILEC for general information on our members and their research, on-going cooperation opportunities, sponsoring or any other matters are kindly requested to contact Ilse via email (ilse.vanderhaar@uvt.nl) or phone (+31 134663648). We thank you in advance for your cooperation.

From cost efficiency to the promotion of investment

In the last two decades, the central focus for network industry regulators has been to reduce tariffs for end-users by stimulating cost savings in former monopoly utilities. After the harvest of low-hanging fruits, further efficiency savings and tariff reductions are becoming harder and harder to achieve. At the same time, many networks dating from the 60s and 70s need replacing, while they are expected to serve new purposes such as providing access to decentralized production. All these challenges require a regulatory framework that is forward-looking and provides incentives for innovation and investment. On 3 December 2008, TILEC organizes the workshop "Energy regulation going forward: from cost efficiency to innovation and investment". Four prominent speakers will discuss the issue. Gert Brunekreeft (Bremen) will look at the link between regulation and the timing of investments by a monopolist. Per Agrell (Louvain) will present the effects of regulatory competition on
transmission network investments. Michael Pollitt, (Cambridge) will draw lessons from telecommunications regulation. Jos Blommaert (Essent NV) will communicate a market participant's view on how to implement a new regulatory framework. The event will take place at Tilburg University. Attendance is free but registration is required.

What to conclude from the European Microsoft case?

The judgment of the European Court of First Instance (CFI) in the Microsoft case led to the closing of a 10-year mammoth case. Its sheer size raises the question whether there are any lessons transcending this complex story. In a recent TILEC discussion paper, Pierre Larouche shows that, while the broad criticism levelled by some antitrust commentators is unjustified, the CFI at times opens more issues than it solves with its judgment, in particular as regards the relationship between competition policy and innovation. It seems clear that the CFI intended to issue a judgment from which it would be difficult to appeal. Contrary to a common criticism, the CFI did not display excessive deference towards the Commission decision but instead extended the stricter standard of judicial review recently defined for merger cases to abuse cases. In the first part of the case, dealing with interoperability information, the CFI did not follow the adventurous legal approach of the Commission but instead recast the case into existing case law. In the second part of the case on tying, the CFI supplied the Commission reasoning with a legal underpinning, but did not question whether the Commission remedy was appropriate.

Innovation, intellectual property and competition policy (IIPC)

On 15 December 2008, TILEC will organize a workshop in Tilburg where the winners of the TILEC IIPC grant competition 2007 will present the results of their research. The workshop will begin with a keynote speech by Vincenzo Denicolò (University of Bologna) on IP licensing. Then, the research projects selected last year will be presented by each winning team and discussed by TILEC members. The winners of the TILEC IIPC grant 2007 were (in alphabetical order): Scott Baker (University of North Carolina at Chapel Hill) & Claudio Mezzetti (University of Warwick), Bruce Kobayashi & Joshua D. Wright (both of George Mason University), and Michael Ward (University of Texas at Arlington). Attendance is free but registration is required. For the complete programme and registration, please click here. TILEC also announces the IIPC grant competition 2008, providing funding for up to three scientists (or teams of scientists), in the amount of EUR 15,000 each, to conduct legal and economic research on the interplay between innovation, intellectual property rights and competition policy. View the full call for proposals here.

Do banks increase their risk-taking when deposit insurance is introduced?

Banks' risk-taking behavior is at the core of the discussions about the current financial turmoil. The regulatory obligations to which banks are subject is known to have a great influence on their behavior but what about pieces of legislation that primarily concern their depositors? In a recent discussion paper, TILEC member María Fabiana Penas and co-author Vasso P. Ioannidou (Tilburg University) study the effect of the introduction of a generous deposit insurance system on banks' risk-taking behavior. Using detailed credit registry data from Bolivia, a
country which introduced a deposit insurance system in 2001, they compare the risk-taking behavior of banks before and after the change. They find that in the post-deposit insurance period, banks were more likely to initiate riskier loans (i.e., loans with worse ratings at origination). These loans carried higher interest rates and were associated with worse ex-post performance. The authors' results also suggest that this increase in risk-taking was due to the drop in market discipline from large depositors, and that differences between large (too-big-to-fail) and small banks diminished in the post-deposit insurance period.

Why do poor cases find their way to trial?

Given the costs involved, litigation seems to be a particularly inefficient outcome of pretrial bargaining. Existing models are based upon the assumption that the plaintiff is less informed than the defendant about the strength of her case. They counterfactually predict that only strong cases find their way to court, where the plaintiff's success rate should be very high. In a recent TILEC discussion paper, TILEC member Jun Zhou shows that litigation can be the outcome of rational behavior by a litigant and her attorney. Indeed, if the attorney has more information than his client about the characteristics of the suit, then the client is led to use litigation as a way of extracting information. Counterintuitively, litigation occurs only when the plaintiff is pessimistic about her prospects at trial, for that is the way for her to make sure that the attorney will not represent the case as weak and spend many more billable hours on bargaining. The plaintiff is more likely to sue if litigation is riskier and less likely to do so if she receives third-party litigation financing. The paper was awarded a 2008 Young Economist Award by the European Economic Association.

Shareholder mobility in five European countries

How do ownership structures develop over time, and how do these structures relate to law? These questions have been addressed in a recent TILEC DP by Christoph Van der Elst (TILEC). Van der Elst analysed the data of a large sample of companies in five European countries and concludes that ownership concentration has decreased at a moderate pace over the last 8 years in France, Italy and Belgium, but has increased in Spain and the UK.
Despite the finding that ownership is increasingly dispersed in the former countries, the fact remains that the great majority of companies in continental Europe continue to have one controlling shareholder. Families and non-financial companies make up the largest shareholders in the European continental countries. Investment policies differ significantly between the different shareholder classes as well between different countries. Furhter, companies are increasingly confronted with the presence of foreign shareholders. Given the development of the investor protection rights, the results partly confirm the work of La Porta, Lopez de Silanes, Shleifer and Vishny (LLSV), who have argued that ownership concentration is a substitute for weak investor protection. However, Van der Elst emphasises that ownership has many other features and "law" cannot explain all ownership characteristics.

How to integrate European electricity markets?

The integration of national electricity markets is an important policy goal of both national governments and the European Commission. Integration is believed to improve competition as well as create additional trade benefits. Despite many improvements in interconnection, markets are still poorly linked to one another. On 9 October 2008, TILEC will organize a half-day Energy Economics Policy Seminar devoted to this topic, in cooperation with the Netherlands Bureau for Economic Policy Analysis (CPB), the Dutch Ministry of Economic Affairs, and the Dutch Competition Authority (NMa). The event will take place in The Hague and will feature two energy experts. Mette Bjørndahl (Norwegian School of Economics and Business Administration) will talk about the lessons learned in the integrated Scandinavian electricity market and discuss the benefits of, and incentives for, close co-operation between the different network operators.
Boaz Moselle (The Brattle Group) will talk about incentives for regional integration and the interrelation between market power and cross-border transmission capacity. Lessons from international experiences will be drawn. After both lectures, discussants will kickoff the discussion with the public. Attendance is free but registration is required.

Shall we pretend we are altruistic?

Standard economic models often postulate that agents are
of the egoistic, materialistic type. However, there is ample evidence that human beings tend to behave in ways which may at first look seem altruistic. Are they really, or do they instead arise from a regard for the individual advantages that may be attached to them? TILEC researcher Sigrid Suetens has recently been awarded a Dutch Science Foundation (NWO) Veni grant of € 208.000 for her research on 'The (limited) rationality of altruism out of self-interest'. This research project looks into the altruistic behavior of people and the rationality of it. In a series of laboratory experiments, Sigrid will examine to what extent altruistic behavior is selfless or stems from self-interest and, when it stems from self-interest, whether it is based on rational calculations or rather follows a certain rule-of-thumb. Sigrid's research has so far focused on the application of experimental techniques to market behavior or behavior in so-called social dilemmas, where individual incentives conflict with what is preferable for the group as a whole.

Services of general economic interest: opening up Pandora's box

Over the past ten years, the topic of services of general economic interest (SGEI) has given rise to ample debate at the European level. This has most recently resulted in the adoption of a Protocol to the Lisbon Treaty, and a proposed amendment of the EC Treaty extending the legislative powers of the European Parliament and the Council to the sphere of SGEI. In a recent TILEC DP, which is now published in the European Law Review, Wolf Sauter (TILEC, Dutch Healthcare Authority) discusses the concept of SGEI against the background of a fundamental tension between the Member States' wish to obtain a broad public service exception on the one hand, and the European Commission seeking to avoid opening a Pandora's box that could threaten the application of market freedoms and competition rules on the other. Special attention is given to position of universal service obligations as a key element of SGEI. In his paper, Sauter proposes a structured test for creating future SGEI. Market failure arguments will be key in defining the legitimate, necessary scope of future SGEI, so as to attain the relevant public interest objectives. By extension, the road to liberalisation and market based-provision of remaining services is opened.